I came across the following while scanning the news: (there just has to be some great songs about these wee folk).

Tuesday, September 21, 1999

Icelandic road builders know how to keep dwarfs happy

David Wallis
The New York Times

REYKJAVIK, Iceland - In the next few weeks, contractors for the island's road authority will gently move a cracked grey boulder known as Grasteinn, said to be owned by dwarfs, that blocks the expansion of a highway on the outskirts of Reykjavik.

Viktor Ingolfsson, a spokesman for the road agency, defends his department's unorthodox expenditure -- "hundreds, not thousands, of dollars" -- describing it as a reasonable public relations expense.

"When native Americans protest roads being built over ancient burial grounds, the U.S. listens," he explained. "It's the same here. There are people who believe in elves and we don't make fun of them. We try to deal with them."

The widespread acceptance of "hidden folk," such as dwarfs, elves, fairies and goblins, is one of the paradoxes of this seemingly modern island nation.

Every few years, construction crews unwittingly verge on demolishing invisible homes, provoking a real outcry.

The road authority typically responds with sensitivity, routing roads around hallowed boulders or delaying construction long enough to give nonhuman constituents time to find new accommodation.

Magnus Skarphedinsson, self-described headmaster of the Elfschool, which offers half-day seminars on paranormal phenomena, expects the rock relocation to actually save the government money.

"If you ignore the hidden people, the cost of construction doubles or triples," he said. "Everything goes wrong. The workers get sick. The machines don't work."

He was echoing a claim so entrenched in Icelandic lore that it scarcely matters whether it's true.

According to Valdimar Hafsteinn, a folklorist and historian who used to work for the roads administration, the agency in the late-1970s even called in a medium to negotiate with irate elves who had objected to scheduled blasting at a road construction site near the city of Akureyri.

Apparently, the perturbed pixies threatened to sabotage the project.

The medium convened two seances, which led to a compromise: Bureaucrats eschewed explosives and the elves withdrew their opposition.

Erla Stefansdottur, Iceland's most famous "elf-spotter," has helped Reykjavik's planning department and two tourist authorities create maps charting the haunts of hidden folk and their ilk. Though Icelanders often lump these invisible entities together, calling them all hidden folk, the maps detail the differences.

Elves, known for festive clothes and demeanour, nevertheless cherish their privacy. Dwarfs, more moody than elves, are the size of human toddlers. Light-fairies -- think Tinkerbell -- glow and possess flight. Trolls, reportedly not the brightest giants in the otherworld, live like hermits inside mountains and glaciers.

Ms. Stefansdottur says she receives about four calls a month from prospective homeowners, asking her to make sure building lots are spirit-free.

I haven't the time to research more on this right now but a search at Google using iceland hidden folk as the search criteria turned up a lot of promising sites.