Visitors enjoy a drink in the Blue Lagoon geothermal spa in Grindavik, Iceland.

Reykjavik - Hunting in vain for a home to rent in Reykjavik, Vally Einarsdottir says landlords either demand too much money or expect her to move out in the summer to make way for tourists who are stoking Iceland's economic recovery.

For many Icelanders like Einarsdottir, a single mother, rising house prices are among the downsides of the volcanic island's tourism boom that has helped the economy back from the brink after a 2008 banking collapse.

Housing shortages and high prices, partly stoked by tourists wanting to see everything from the Northern Lights to landscapes used in the HBO TV series Game Of Thrones, are among the campaign issues ahead of a parliamentary election on Oct. 29.

“The consequence is anxiety. Anxiety over everything. Just looking at the fact that we may be homeless,” said Einarsdottir, a 33-year-old who works in customer support at an IT firm. She has been looking for an apartment for herself and her 10-year-old daughter since May.

Speaking in Reykjavik, where cranes dot the skyline, she said she has to vacate her current rental by November as it is being sold. Construction is picking up after the financial crisis, fuelled by demand for homes and hotels.

Einarsdottir said rentals start at around 200 000 Icelandic crowns (about R22 000) a month, against the 140 000 she is now paying.

Many landlords prefer to rent to tourists in the summer rather than to Icelanders. That reduces accommodation on the market, inflates prices and imposes conditions such as a requirement to vacate the property from May to September.

Opposition parties say the centre-right government has thrown open the doors to foreign tourists with too little regulation of a huge influx that they say threatens the character of the island.

“It's like the city (Reykjavik) is not my city anymore, it's like Disneyland downtown,” said Birgitta Jonsdottir, leader of the anti-establishment Pirate Party, which could form the next government after the parliamentary vote.

Opinion polls show support for the party running at over 20 percent, slightly ahead of the Independence Party, which shares power with the Progressive Party, and is polling at around 12 percent, well below the 24 percent it got in the 2013 election.



Jonsdottir said her party also wants restrictions on the numbers of tourists visiting natural sites outside the city, which often lack of basic facilities such as toilets.

“I as an Icelander used to go there all the time, but I can't go there anymore, it's just too crowded,” she said. The party would work to introduce a tax on hotels to make it possible to invest in sanitation and other infrastructure.

Fuelled by the tourism boom, economic growth this year is expected to hit 4.3 percent and the latest data shows a seasonally adjusted unemployment rate of 3.1 percent. Tourism now accounts for more than 10 percent of jobs, according to Islandsbanki.

Icelandic bank Arion estimates that 8-10 000 extra houses will be needed before 2020, in a country of 330 000 inhabitants as demand picks up after the financial crisis. It reckons tourism could make up almost 10 percent of GDP in 2016.

Residential housing prices were up 12.4 percent in August compared with a year ago, according to Arion, while Reykjavik rental prices rose nine percent in August year-on-year and were up 55 percent from early 2011, data from Registers Iceland showed.

“A lot of the homes that would normally have gone into the market have been bought or used to rent out to tourists,” Housing Minister Eyglo Hardardottir told Reuters.

“Tourism is a major change, because of the changes in the way people travel. They travel much more independently,” she said. “What I've been emphasising is ... that we get the number of homes up.”