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Case 7. Iceland – South-Iceland Region

Local Infrastructure Strain and increased service needs

Introduction

The tourism industry in Iceland has grown rapidly for the past 15 years, with the number of tourists reaching record highs. In 2023, Iceland welcomed approximately 2.2 million tourists, with a slight increase in 2024 and projections for 2025 -2027 suggesting further increases (Ferðamálastofa, 2025). This growth has been particularly pronounced in southern Iceland, known for its landscapes and natural attractions. This surge has brought both opportunities and challenges, particularly during peak seasons.

Southern Iceland, encompassing 15 municipalities with a collective population of 35,000 people (Hagstofan, 2025), covers an extensive area of 30,966 km², stretching approximately 375 km from Herdísarvík in the west to Lónsheiði in the east. This region is rich in resources, including powerful rivers, geothermal energy, fertile soil, unique natural phenomena, and stunning landscapes. It is divided into three distinct areas: the western lowland, which is fertile, has many rivers, summer houses and is in parts quite densely populated; the eastern area, characterized by mountains, glaciers, and deserts with sparse vegetation and a declining population; and Vestmannaeyjar (Westman Islands), which has significant fishing and fish processing industries, a dense population and remarkable nature (SASS, 2025).

Background

Tourism is vital for Iceland It has become a significant part of the economy, contributing to job creation, income generation, and regional development. The industry supports a wide range of businesses, from hotels and restaurants to tour operators and retail shops. However, the rapid growth of tourism has also led to several challenges such as congestion, strain on resources, seasonality, environmental impact, and housing issues. The influx of tourists has put immense pressure on roads and other infrastructure, while health care, security, and police services are particularly strained during peak seasons.

Despite the economic benefits, the expected improvements in public services and infrastructure have not fully materialized. The tourism industry in Iceland is highly seasonal, leading to fluctuations in demand for services and resources, making it difficult for businesses and local authorities to plan and manage effectively. Housing issues have been exacerbated by the tourism boom, with many properties being converted into short-term rentals for tourists, reducing the availability of long-term housing for residents. The influx of workers in the tourism sector has also increased demand for housing, driving up prices and sometimes making it difficult for locals to find affordable accommodation. Addressing these challenges requires effective governance, community engagement, and sustainable practices to ensure that Iceland can continue to benefit from tourism while preserving its cultural and natural heritage.

The socio-economic context of tourism in S-Iceland

Community engagement is a critical component of sustainable tourism, ensuring that local communities are actively involved in tourism planning and decision-making processes. In Iceland, various methods have been employed to involve local communities, such as public consultations, community meetings, and participatory planning workshops (Menningar- og viðskiptaráðuneyti, 2024). These initiatives include the development of local tourism boards that involve residents in decision-making processes, ensuring that their voices are heard and their concerns addressed. Additionally, educational programs aimed at both tourists and locals help foster a mutual understanding and respect for the local culture and environment. Preserving and promoting local cultural heritage is essential for maintaining the unique identity of tourist destinations. In Iceland, strategies for cultural preservation include the promotion of traditional crafts, music, and festivals.

The Icelandic government has also implemented policies to protect historical sites and support cultural institutions. The impact of tourism on cultural integrity is a double-edged sword; while it can lead to the commodification of culture, it also provides opportunities for cultural revitalization and increased awareness of local traditions. Ensuring that the benefits of tourism are equitably distributed among different community groups is crucial for social sustainability. In Iceland, measures to promote social equity include providing training and employment opportunities for local residents, supporting small and medium-sized enterprises (SMEs), and ensuring that tourism infrastructure is accessible to all. Efforts to improve accessibility for people with disabilities ensure that tourism benefits are shared more broadly across the community and are included in the new tourism strategy for Iceland.

Tourism is a significant driver of economic growth in Iceland, contributing to job creation, income generation, and economic diversification. The quality of employment and working conditions in the tourism sector is a key consideration for social sustainability. Efforts to improve working conditions include providing training and development opportunities, ensuring fair wages, and promoting work-life balance. In Iceland, as well as many other places, tourism related work is however often seasonal and carried out by migrant workers that do not permanently settle in the communities they work in (interviewee 33).

The economic impact of tourism is measured through indicators such as GDP contribution, employment rates, and business revenues. In 2023, tourism accounted for approximately 8.8% of Iceland’s GDP, highlighting its importance to the national economy workshops (Menningar- og viðskiptaráðuneyti, 2024). The industry supports a wide range of businesses, from hotels and restaurants to tour operators and retail shops. However, the rapid growth of tourism has also led to economic disparities, with some regions benefiting more than others. Ensuring equitable distribution of economic gains is a key priority for sustainable tourism development and in some of the more popular destinations, e.g. Southern-Iceland, many feel that this is not the case (interviewee 37 & 33). This is especially common when talking about public infrastructure and necessary resources to perform the services needed with the increased tourism flow (interviewee 33).

In Iceland, practices to mitigate negative environmental impacts include promoting eco-friendly tourism activities and protecting natural sites. The Icelandic government has also introduced policies to reduce the carbon footprint of tourism although that is not operationalised in detail in any of the current strategies or policies (Menningar- og viðskiptaráðuneyti, 2024). Efforts to promote environmental sustainability often involve collaboration between government agencies, local communities, and tourism businesses. For example, the Icelandic Tourist Board has implemented programs to educate tourists about responsible travel practices, such as minimizing waste and respecting natural habitats (Samtök Ferðaþjónustunnar, 2025).

Overall, tourism is a large force in Icelandic society, both economically, environmentally and socially. There are certain clear benefits of tourism increase, e.g. the possible regional development effects, employment opportunities and some increased services that have benefitted local communities. However, many feel that the necessary infrastructure does not go hand in hand with the influx of tourists, such as roads, safety, rescue, healthcare, and police services, to name the most common (interviewee 35 & 36). In Southern-Iceland for example, many locals fell that these necessary services have not increased or been maintained correctly and in proportion with the tourism increase.

Tourism governance structure in Iceland

The governance framework for tourism in Iceland involves multiple stakeholders, including government agencies, local authorities, tourism businesses, and community organizations. The ministerial level plays a central role in developing and implementing tourism policies, while the Icelandic Tourist Board oversees the regulation and promotion of tourism activities. Local authorities are responsible for managing tourism at the municipal level, including infrastructure development and community engagement. Effective governance is essential for ensuring that tourism development aligns with sustainability goals. In Iceland, the tourism governance framework emphasizes collaboration and coordination among stakeholders, with a focus on transparency, accountability, and stakeholder participation. Policies and strategies are developed through a participatory process, involving input from various stakeholders to ensure that diverse perspectives are considered. The "Ferðamálastefna til 2030" (Tourism Strategy to 2030) outlines Iceland’s main strategy in tourism The strategy is built on the concept of sustainable development and includes several key measures to address the challenges posed by the rapid growth of tourism (Menningar- og viðskiptaráðuneyti, 2024).

These measures include investments in infrastructure, enhancements to public services, and initiatives to promote environmental conservation. The strategy also emphasizes the importance of preserving and promoting Icelandic culture, ensuring that tourism activities respect and enhance local traditions and heritage. The action plan of the strategy highlights needs for better and more reliable data collection and research to inform policy decisions and ensure that tourism development is based on reliable information. While it is not specified in the strategy, there are hints that this data will include wellbeing and opinions of locals regarding tourism development (Menningar- og viðskiptaráðuneyti, 2024).

Discussion

Over the past 15 years, tourism in Southern Iceland has increased exponentially. While the local population in Southern Iceland is around 35,000, the region receives approximately 2 million foreign visitors annually (Ferðamálastofa, 2023). In 2024, close to 2.5 million foreign visitors came to Iceland, with about 80% visiting the southern regions (Ferðamálastofa, 2024). This surge in tourism has brought both positive and negative impacts to the region. On the positive side, tourism has boosted the local economy in some places through the purchasing power and presence of visitors, creating jobs and supporting local businesses. However, the rapid growth in tourism has also led to several challenges. Locals report issues such as road congestion, illegal off-road driving, and wear and tear on main roads (interviewee 33). The strain on services and infrastructure is evident, with the limited number of healthcare professionals and police officers posing significant dilemmas. In such a geographically large region with few inhabitants, the nearest healthcare professionals can be very far away, and the distance to the nearest hospital can be substantial. This is particularly problematic during larger accidents, often involving tourists, which have occurred and are likely to happen again (interviewee 37). Harsh weather conditions can further complicate rescue operations, as rescue helicopters may be grounded because of weather in the time of most need. Increasing the number of medical staff and police officers, as well as improving their distribution across the region, can enhance response times and ensure that help is available when needed. Additionally, investing in rescue services, which are often voluntary groups of locals, is crucial to support their efforts in assisting tourists in distress.

Irresponsible behaviour by some tourists around powerful natural phenomena, such as icebergs, glaciers, and the large sandy beaches of the Atlantic Ocean, poses safety risks and too often result in fatalities (interviewee 35). The rescue squads in Iceland are voluntary groups of locals who are frequently called upon to bring trapped or stranded tourists to safety, search for missing individuals in the highlands or on glaciers and respond to other emergencies (interviewee 36). This reliance on voluntary rescue squads highlights the need for better support and resources for these critical services.

Road safety and maintenance are also major concerns for locals in Southern Iceland. While local authorities do what they can, many public services, such as healthcare, police, and maintaining main roads, are the responsibility of the national government. Despite the southern region attracting millions of visitors each year, locals feel that the necessary support, resources, and investment in infrastructure and services have not kept pace with the increase in visitor numbers, leading to frustration (interviewee 36 & 37).

The concept of "visitor management control" or "álagsstýring" is crucial in addressing these challenges. This involves measures such as improving infrastructure, disseminating information, and possibly implementing booking systems and fees to manage tourist flow and protect natural sites. The goal in the Icelandic tourism strategy is to balance the economic benefits of tourism with the preservation of the environment and the well-being of the local population. Recommendations include improving road safety and maintenance, enhancing healthcare and police services, and fostering better integration of foreign workers into local communities (Menningar- og viðskiptaráðuneyti, 2024). While these are clear goals on the policy level the locals still feel that considering the societal and environmental costs the tourism causes to their infrastructure, the governmental level does not bring back the necessary maintenance and investment with the economic gains they gather from the increased tourism, mainly from state level taxes that tourists bring in (interviewee 33 & 35).

Survey results show mixed impacts on services, commerce, and community spirit (Árnason & Kolbrúnardóttir, 2019). Increased traffic and strain on healthcare and police services are however significant issues according to these surveys. The adaptation of foreign workers and community integration varies, but with clear calls for better language support and housing solutions for foreign workers. Addressing road safety, healthcare, police presence, housing, and community engagement are all subjects that surveys show are pending while local expressed some of these topics in interviews undertaken for this study as well (interviewee 33 & 36).

Conclusion and recommendations

While tourism has brought economic benefits to Southern Iceland, it has also created significant challenges that need to be addressed to ensure socially sustainable tourism. A balanced approach that considers the well-being of local communities, improves infrastructure and services, and involves residents in decision-making processes is essential for the sustainable development of tourism in the region. What interviews undertaken for this research highlight are that the most pressing social issue regarding tourism development in Southern Iceland is securing adequate public services, maintaining roads and safety through better police and health care professional presence.

The rapid growth of tourism in Southern Iceland has placed immense pressure on infrastructure and public services. The strain on roads, healthcare, and police services is particularly pronounced during peak tourist seasons. Locals have expressed frustration over the lack of investment in maintaining and improving these essential services, which are crucial for both residents and tourists. The reliance on voluntary rescue squads further underscores the need for better support and resources for emergency services.

To address these challenges, it is essential to gather comprehensive data on the social impacts of tourism. This includes evaluating social measures, social costs, and social gains to ensure a holistic understanding of tourism's effects. The Icelandic government's tourism strategy emphasizes the need for reliable data collection and research to inform policy decisions. By incorporating the well-being and opinions of locals into this data, policymakers can develop more effective strategies for managing tourism sustainably.

Improving public services and infrastructure is vital for enhancing the well-being of local communities and ensuring that the benefits of tourism are equitably distributed. Investments in healthcare, police services, and road maintenance can significantly improve the quality of life for residents and create a more positive perception of tourism. Additionally, fostering better integration of foreign workers into local communities through language support and housing solutions can enhance social cohesion and ensure that the economic benefits of tourism are shared more broadly.

Lastly, addressing the challenges of socially sustainable tourism in Southern Iceland requires a comprehensive approach that prioritizes the well-being of local communities, improves public services, and involves residents in decision-making processes. By evaluating social measures alongside environmental costs and economic gains, policymakers can develop strategies that balance the benefits and challenges of tourism, ensuring a more sustainable and equitable future for the region.

Based on insights from Southern Iceland, the key recommendations for promoting socially sustainable tourism include:

Improve Infrastructure and Public Services: The national government needs to invest in road maintenance and safety to handle the increased traffic from tourism, enhance public services like healthcare and police presence in the remote areas that are large tourist destinations, to ensure timely response during emergencies, and support voluntary rescue squads with better resources and training.
Community Engagement and Governance: Involve local communities further in regular tourism planning and decision-making processes through public consultations and participatory planning workshops and involve local tourism boards that include residents to ensure their voices are heard and concerns addressed.
Equitable Distribution of Economic Benefits: Provide training and employment opportunities for local residents to ensure they benefit from tourism, and support small and medium-sized enterprises (SMEs) and ensure that tourism infrastructure is accessible to all.
Cultural and Environmental Preservation: Promote traditional crafts, music, and festivals to preserve and promote local cultural heritage, implement policies to protect historical sites and support cultural institutions, and promote eco-friendly tourism activities and protect natural sites through collaboration between government agencies, local communities, and tourism businesses.
Integration of Foreign Workers: Improve language support and housing solutions for foreign workers to ensure better integration into local communities.
Better measurement of different social indicators: This needs to be done on a regular basis to assess social effects alongside economic and environmental indicators. This approach ensures a holistic understanding of tourism's impact on local communities. By regularly monitoring social indicators such as community well-being, employment rates, and cultural preservation, policymakers can make informed decisions that balance the benefits of tourism with the needs and resources of local residents.

By implementing these recommendations, Southern-Iceland can better address the challenges of socially sustainable tourism and ensure that the benefits of tourism are shared more broadly across the community while preserving its unique cultural and natural heritage.