The Iranian Parliament’s double-urgency motion called “Surge in Housing Production” has been approved by the Guardians Council – an oversight body that ensures laws are in line with the Iranian Constitution and Sharia.
The proposal was first approved by the parliament in April and sent to the council, but was returned for amendments. Now the Guardians Council has given its blessing to the ambitious plan that also happens to be one of the key campaign promises of the new president, Ebrahim Raeisi.
The new law of “Surge in Housing Production” requires the government to engage in the construction of one million housing units annually. It has envisioned the formation of a so-called “Supreme Housing Council” at the highest tier of the government led by the president with the minister of roads and urban development as its secretary, along with 11 members of the Cabinet and the head of the Islamic Revolution Housing Foundation as its active members, and one parliamentarian as the observer member.
The establishment of a “National Housing Fund” for harnessing and allocating the financial resources needed by the plan has been included in the law as well; the roads minister will head the board of trustees of the fund, Otaghiranonline.ir reported.
According to the new law, banks will be mandated to allocate 20% of their financial facilities to real-estate development annually. The banking system will be required to spend 3,600 trillion rials ($13.33 billion) on housing loans, such that 4,000 million rials ($14,814) will be extended to each urban residential unit and 2,500 million rials ($9,259) to rural units.
Another article of the law requires government organizations and institutions to give their suburban lands (excluding the agricultural lands and those protected for environmental purposes) to the Ministry of Roads and Urban Development under 99-year lease agreements. The law also says the provision of building materials such as cement and steel must be met through commodity stock.
“The law will be communicated to the government soon by the speaker of the parliament,” Nezameddin Mousavi, the spokesman of the Majlis Presiding Board, said on Sunday.
Ali Nikzad, a Majlis deputy speaker, said the engagement of the private sector and provision of land and loans are key elements of the law.
“Banking facilities will be adjusted to the inflation in the coming years. Real-estate development will help create employment as the construction of 100 square meters of a residential unit generates 2.5 direct and indirect jobs,” he added.
Bank Maskan, the state agent bank of the housing sector, will provide loans for the construction of 210,000 of the plan’s 1.2 million residential units, says its managing director, Mahmoud Shayan.
He believes the new president’s housing initiative is “realistic”, given the growth in the country’s money supply.
“At present, loans allocated to the housing sector account for less than 3.5% of all banking facilities. The increase in the share will provide resources needed for the construction of one million homes,” he was quoted as saying by Hibna.
“It doesn’t seem economically viable for the banking system to defy the law. They need to put their utmost efforts to fulfill the president’s promise.”
Urban Development vis-à-vis Population Growth
Majlis Research Center, the influential research arm of the parliament, has looked into the performance of Iran’s housing and urban development sector and measures taken to improve housing conditions to meet the Iranian population's needs four decades into the Islamic Revolution in one of its recent reports.
The center also made recommendations to optimize citizens’ housing affordability and improve the country’s economic development.
With the advancement of urbanization and changes in the demographic age structure, demand for housing has rapidly increased over the years following the Islamic Revolution in 1979.
According to the findings of the National Population and Housing Census pertaining to the years ending March 1977 and March 2017, the Iranian population has increased twofold over 40 years. The number of big cities with a population of over 100,000 grew from 23 to 98 and urbanization increased from 47% to 74%.
The total number of households jumped by 3.6% from 6.7 million to 24.1 million and the number of residential units increased by 4.3% from 5.3 million to 22.8 million. Over these years, the country has been short of one million homes, when you compare the number of households with the number of residential units.
Household size decreased from five members in the year ending March 1977 to 3.3 members in the year ending March 2017.
Despite the twofold rise in population, the number of households has increased four times over the 40-year period, thanks to changes in living preferences and fewer people per family.
The household-to-housing unit ratio declined from 1.26 to 1.06 and urban density (the number of people inhabiting a given urbanized area) when calculated for households decreased from 1.37 to 1.04 over these years.
In terms of the quality of residential units, the share of steel-framed homes improved from 0.3% in the year ending March 1977 to 57% in the year ending March 2017. The low level of this share is indicative of the greater degree of dilapidated and slum areas.
Home ownership, which is of significant importance in the Iranian culture, has always been more than 70%. However, it has been on the decline over the past few decades.
The government, the private sector and the cooperatives sector each have a share in the production and supply of housing. Over the past decades, the government’s share has been on the decline from 20% to 4%. The biggest intervention the government has made in the housing market goes back to granting credits for construction via banks [which has been retained to some degree up until now], home construction by the Imam Khomeini Relief Committee for the less privileged, supply of land for Mehr Housing Project and offering incentives to mass builders.
Today, the private sector accounts for the lion’s share of home construction with 90%. Civil workers’ cooperatives have a limited share in real-estate development.
According to the Housing Comprehensive Plan (March 2017-27) drafted by the Ministry of Roads and Urban Development, the Iranian population is expected to reach 88.2 million in the year ending March 2027. Projections show that by then, 68.2 million would be living in urban areas and 20 million in rural areas. The number of households will hit 28.7 million, of whom 22.1 million will be living in cities and 6.15 million will inhabit villages.
Newly-formed families will need 4,076,000 homes over the 10 years to March 2027 (for 3,997,000 urban households and 79,000 rural households). However, the country will still be short of 1,370,000 homes (including 673,000 units in cities and 697,000 in villages). A total of 5,313,000 homes, including 3,003,000 in cities and 2,310,000 in villages, have to be repaired or rebuilt by then.
From the Iranian year ending March 2007 to the year ending March 2017, close to 590,000 residential units were supplied to the market. The highest and lowest number of homes constructed over these years were registered for the year ending March 2013 with 820,000 and the year ending March 2017 with 390,000, respectively.
About 2.5 million homes in the country are empty. The global optimal ratio of vacant house is 5% in urban areas and 2.5% in rural areas whereas it is 10.3% in Iran’s urban areas and 8.5% in rural areas.
The Housing Comprehensive Plan says the number of vacant homes must decline to 1.4 million (1.1 million in urban areas and 300,000 in rural areas).
According to the experts’ opinions, housing constitutes 5% of the country’s gross domestic product directly and 12-13% indirectly. A significant share of the country’s money supply is spent in the housing sector.
Factors influencing investment in the housing sector include the added value of construction and the volume of credits allocated by banks to this economic activity. Investments in the housing sector over the two decades after the Islamic Revolution had improved considerably but declined over the past few decades owing to the following reasons:
The small share of government’s investment; disinclination of cooperatives and the private sector; the disproportionate value of home loans with home prices and households’ purchasing power; lack of appropriate channeling of money supply into markets; conflict of responsibilities in urban management; the short-lived nature of policies and accumulated demand in the housing market.
The recession in real-estate development reduces job opportunities, given the fact that the housing industry is intertwined with 120 other industries.
Real-estate developers say about 13-15% of direct and indirect jobs are dependent on the construction industry, the report read.
Home Prices 500% Higher Than Construction Costs
The per square price of homes in Iran is 500% more than the construction cost, according to former deputy minister of roads and urban development, Mahmoud Mahmoudzadeh.
Noting that exorbitant home prices are beginning to stabilize in recent months, the official said, “The only reason behind the wide gap between the construction costs and market prices of homes is the fact that housing is considered an investment vehicle,” IRIB News reported.
Each year, 100 million square meters of buildings are constructed in Iran’s urban and rural areas, according to the head of Construction Engineering Organization, Ahmad Khorram.
“The annual turnover of real-estate development is 4,000 billion rials [$14.8 million]. Engineering services account for 5-8% of construction costs in the world whereas in Iran they barely exceed 1%,” he added.
