When Rauða Húsið first opened, it was in another red house, the old schoolhouse. On 14. May 2005, it moved to its current home at Búðarstígur 4, the house also known as ‘Mikligarður’.

A woman named Guðmunda Nielsen built the first part of the house, which now houses the main dining room and the cozy cellar, in 1919. She was a Renaissance woman: she was a businesswoman, organist, choir director, music teacher, composer, and active in many societies, including the Eyrarbakki Women’s Society. She studied business in Copenhagen before opening her shop, Guðmundubúð, one of the most fashionable shops in Iceland at its time.

Guðmunda lived in The House next-door, which is now home to the Árnessýsla Folk Museum and open to the public during the summertime. The House was built in 1765 as a home for the Danish merchant family living in Eyrarbakki. It was at its time the center of culture on the south coast.

In 1955, the top floor was added. At that time, it was home to Plastiðjan plastic factory, which made insulation and heating pipes. In 1960, they built the three-story addition in the back, which today has the restaurant’s North Hall, the kitchen, and storage.

Icelanders were late to indulge themselves in luxury food like lobster, since lobster fishing didn’t start here in Eyrarbakki until 1954. In the Icelandic national daily, Morgunblaðið, the news that lobster fishing had started in Eyrarbakki made the front page headline on the 29th of August that year. The article also featured a picture of a lobster so that Icelanders would know what this strange creature actually looked like. The article predicts that the lobster will be as important to the people of Eyrarbakki as the herring used to be to the people in Siglufjörður in the north. The Icelandic lobster is known as the Nephrops norvegicusand is somewhat smaller than other lobster species, the largest being 16 -18 cm long.