Capital Region

The Capital Region exists because hot springs exist—and because Iceland's only naturally sheltered southwestern harbor concentrated a nation's ambitions into 1,046 km². Home to 249,054 residents (2025), this region contains 64% of Iceland's total population at a density of 238 people/km²—making it an extreme outlier in a country averaging 3.5 people/km² nationwide. Reykjavík (138,772 residents) anchors seven municipalities that transformed from fishing settlements to the 'Nordic Tiger' financial center that spectacularly crashed in 2008, losing 80% of stock market value in days. The recovery pivoted toward services: Borgartún became Iceland's Wall Street, hosting three investment banks and fintech startups, while Groska innovation hub incubates software and biotech ventures. The Icelandic Ocean Cluster—70+ marine companies—demonstrates how fishing heritage transforms into blue economy knowledge work. Yet concentration risk intensifies: virtually all government, banking, media, and university functions cluster here, creating a monoculture vulnerable to the same contagion that destroyed the banking sector. By 2026, housing affordability (prices up 40% since 2020) and infrastructure strain test whether a city built for 150,000 can sustainably house 250,000.