The Statistical Center of Iran has published its latest report on construction permits issued in Tehran and throughout the country during the fourth quarter of last fiscal year that ended on March 20.
A total of 1,489 permits were issued by Tehran Municipality in Q4, indicating a 24.3% increase compared with the previous quarter but a 17.6% decline compared with the same quarter of the year before.
A total of 11,540 homes are expected to be built as a result of the permits that indicate a 22% growth quarter-on-quarter but a 13.5% decline year-on-year.
The average number of residential units per permit in the capital city was 7.8.
In Tehran, the total floor area of units in buildings with permits issued in Q4 stood at 2,236,000 square meters, registering a 19.5% increase QOQ but a 5% decrease YOY.
The average floor area of units per permit in the capital city was 1,502 square meters.
Municipalities across the country issued a total of 36,993 building permits in Q4, registering a 40.2% increase QOQ but a 23.4% decline YOY.
A total of 115,450 housing units are expected to be built as a result of the permits issued across Iran’s urban areas, indicating a 39.6% growth QOQ but a 15.8% fall YOY.
The average number of residential units per permit across the country was 3.1.
Across the country, the total floor area of units in buildings was 21,542,000 square meters, posting a 35.9% jump QOQ but an 18.5% drop YOY.
The average floor area of units per permit was 582 square meters.
Tehran’s Construction Material Inflation at 55.3%
The general price index of construction materials for residential properties in Tehran, using 2011 as the base year, grew by 55.3% during the four-quarter period ending March 20, compared with the previous year's corresponding period.
The annual inflation of construction material was 69.9% in Q4.
The index stood at 1,222.5 in Q4 (Dec. 22, 2021-March 2022), according to SCI's latest report published on its website. Compared with the previous quarter, which ended on Dec. 21, the index saw a 3% rise.
In the third quarter of the previous Iranian year (Sept. 23-Dec. 21), the construction material price index stood at 1,186.3 and registered a 2.8% quarter-on-quarter growth.
The index rose by 35.5% in Q4 compared with last year's corresponding quarter (year-on-year). In O3, the year-on-year index grew by 39.6%.
Compared with the previous quarter, the category of “electrical facilities” registered the highest growth among all categories of construction materials with a growth of 13.6%. This is while “ironware, rebar, profile for doors, windows and fences” recorded the lowest index growth with 1.2% compared with the preceding quarter.
“Glass” witnessed the highest year-on-year inflation with 69% while “bitumen sheet, tar paper and asphalt” registered the lowest year-on-year price growth with 27.2%.
The highest annual price hike was registered by “glass” with 85.4% and the lowest annual growth was posted by “services” with 36.8%.
Housing Supply 5% Less Than Demand
Statistics show that the number of homes in Iran is about 5% less than the number of households.
“A significant number of housing units are located in slum areas and need replacement, which indicate that real-estate development needs to expand; the longer the prosperity of this industry is delayed, the graver the shortage will become. Therefore, the government’s goal of building one million housing units per year is a necessity,” Nasser Zakeri, an economist, said in an article for the Persian daily Shargh. A translation of the text follows:
However, the question that needs to be answered by those in charge is that whether the housing problem in our economy is really to blame on the shortage of supply. Is undersupply the only cause of rapid rise in housing prices? The impact of shortage on price increase is undeniable but statistics show that the causes of the problem is more than the shortage; the approach toward homeownership is to blame.
The sudden increase in the number of tenants shows that speculative demand in the housing market has gained control over the market, driving real applicants out of the market.
The considerable number of empty homes indicates that homeowners’ only motivation is to make profit from a possible price increase in the future; that is justifiable, given the special conditions of the country’s economy, the uncontrollable increase in money supply, uncertainty of the capital market and difficulties in the production sector. As a result, housing has turned into the best possible asset to convert your money into.
Those who supply and demand housing behave differently from those who make investments in other markets; for example, real-estate developers do not feel the need to modernize their production method and reduce production costs by using new technology. They do not care about promoting productivity; they ignore the need to sell products fast because, unlike other producers, their profits do not come from production; they make money from “owning” the property.
The special economic conditions of the country have turned the housing market into an “unusual” market; the concepts of scarcity and excess in this market are different from those of other markets.
For the same reason, you can argue that the most effective policy to solve the housing problem is not to build more homes on the outskirts of cities. Firstly, policymakers need to streamline and rearrange the housing market and the construction industry. Under the current circumstances, neither supply nor demand is real.
The first effect of rearrangement will lead to a change in the ownership of residential units. Many homeowners who have invested their assets in real-estate will exit the market. On the other hand, real-estate developers who intend to sell their products quickly will plan to produce more, as they take into account the purchasing power of applicants.
News of the past month suggests that government officials seem to have realized the importance of housing and the difficulties of tenants better; they are thinking about taking more effective measures than before.
However, after taking a brief look at the macroeconomic variables of the country, neither the financial state of the government nor the special social conditions allows trial and error. Those in charge need to confer with experts and draw up a reform plan for the housing sector.
Overhauling the ownership approach and phasing out speculative demand from the housing market is a necessity and the government should place it on top of its agenda.
