The Icelandic housing market was already saturated with a combination of population growth and tourism, which has picked up again after the pandemic. More than 8000 bedrooms in the capital region were available for short-term rental as of last northern summer, according to Iceland’s tourist board.

For those interested in buying a home, interest rates are at more than 9 per cent.

Fannar Jonasson, the mayor of Grindavik, whose office has moved to City Hall in the capital, Reykjavik, said the scarcity of places to live meant residents were now scattered around the country, with many struggling to find long-term housing.

“On all fronts, we are now working toward a long-term solution,” he saidon Thursday in a phone interview.

The town’s population has grown rapidly in recent years because of an influx of people from Reykjavik, which is only about 50 km away.

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After the eruption, banks agreed to freeze mortgage payments, but residents said they could not get insurance payouts unless their houses were directly destroyed.

Bryndis Gunnlaugsdottir, a lawyer and a former resident, said that when she saw her neighbour’s house under the lava, but saw her own house still standing, “it was the worst moment since the evacuation”.

Speaking at a packed town hall-style meeting with politicians and scientists on Tuesday, she added that if her house had gone up in flames, her financial stress would ease.

“The noose around my neck would disappear,” she said, because her home would have been covered by insurance.

The government is now partly subsidising the rent of Grindavik’s former residents, but lawmakers are discussing a bill that would allow the government to buy all the homes there and then offer them back to the former owners once the area was considered safe again.

Vilhjalmur Arnason, a lawmaker and resident of Grindavik, said that that would be the only way to answer the locals’ demands.

“Let us build a new home now,” he said in a phone interview as he left a meeting with the government’s finance committee in Reykjavik. “So we can find a new point to start on.”

Volcanologists said that, according to predictions, the volcanic activity on the southwestern Reykjanes Peninsula, where Grindavik is, was going to last 10 to 20 years.

Recent earthquakes have also created cracks in the town, and last month, a construction worker fell down a crater believed to be 40 metres deep. He is presumed dead. The eruption also broke the main pipeline channelling hot water into Grindavik’s homes.

“The grounds for people to inhabit Grindavik are not in sight,” said Magnus Tumi Gudmundsson, who advises the civil defence agency.

But Gudmundsson added that the volcanic activity could move away from the craters menacing Grindavik, allowing the town to be safe again.

Gisli Palsson, an anthropology professor who studied the impact of a 1973 eruption on the Westman Islands, the last time a volcanic eruption displaced part of Iceland’s population, said that the doomsday predictions for Grindavik reminded him of the despairing tone in the first weeks after the eruption there.

“At first, many people said it was over for the town,” he said. But, he added, when the eruption stopped, many people who had strong roots in the area eventually went back.

This article originally appeared in The New York Times.