Best Budget: Hotel Hafnarfjordur
Just five miles from the tourism center of Reykjavik is Hafnarfjordur, a charming small town that is known to be one of the largest settlements of elves in Iceland (according to locals). The 71-room, Hotel Hafnarfjordur is a 20-minute drive to the Blue Lagoon or 10 minutes to Reykjavik, and offers clean, comfortable accommodations at a fraction of the downtown prices. Standard Double Rooms with kitchenettes range from 247 square feet to 365 square feet and have wood floors, large sunlit windows, cheerful décor, a couch and a television (although not flat-screen). There’s also free continental breakfast, parking and WiFi.