Majlis Research Center, the influential research arm of the parliament, has surveyed the performance of Iran’s housing and urban development, and measures taken to improve housing conditions over the past four decades in one of its recent reports.
The report also includes recommendations to optimize housing affordability and improve economic development, MRC’s website reported.
With the advancement of urbanization and changes in demographic structure, housing demand increased rapidly following the Islamic Revolution in 1979.
According to the findings of National Population and Housing Census pertaining to the years ending March 1977 and March 2017, the Iranian population 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 3.6% from 6.7 million to 24.1 million and the number of residential units increased 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 the 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.
Over the past decades, the government’s share has been on the decline from 20% to 4%. At present, the private sector accounts for the lion’s share of home construction with 90%
In terms of the quality of residential units, the share of metal-framed homes improved from 0.3% in the year ending March 1977 to 57% in the year ending March 2017. Low levels of this share is indicative of the higher share of dilapidated and slum areas in a country.
Home ownership, which is of significant importance in Iranian culture, has always been more than 70%. However, it has been on the decline over the past decades.
The government, private sector and cooperatives sector have various shares in the production and supply of housing in Iran. 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 to construction via banks [which has been retained to some degrees 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.
At present, the private sector accounts for the lion’s share of home construction with 90%. Civil workers’ cooperatives have a limited cut in real-estate development.
Supply and Demand
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 inhabit cities and 6.15 million will be living in villages.
Newly-formed families will need 4,076,000 homes over 10 years to March 2027 (including 3,997,000 urban households and 79,000 rural households). The country will 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 the 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 produced and 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 vacant. The optimal ratio of vacant house is considered to be 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 opinions of experts, housing comprises 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 impacting investment in the housing sector are the added value of construction and the value of credits allocated by banks to this economic activity. Investments in the housing sector over the two mid-decades of Islamic Revolution had improved considerably, but have declined over the past 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’ low purchasing power; lack of appropriate channeling of money supply into markets; conflict of responsibilities in urban management; the short-lived nature of policies and demand accumulated in the housing market.
The recession in real-estate development costs numerous job opportunities, given the fact that the housing industry is tightly intertwined with 120 other industries.
Real-estate developers say one direct and 1.24 indirect jobs will be created for each 60-meter construction; about 13-15% of direct and indirect jobs are created by the construction industry, the report read.
Guidelines to Improve Housing Management
The parliamentary think tank also put forward recommendations for the development of housing sector over the next decade.
1. MRC urges policymakers to focus on achieving a 1:1 ratio in the number of homes to households. Presently, the index is 1.06, suggesting that households outnumber residential units or home shortage is about 6%. Home supply must increase for one household to have one home. As can be noted, the ideal index is around 0.95.
2. The exponential rise in the prices of land has been the most serious issue in the housing sector over the past decades. Land represented 47% of the building costs in the year ending March 2017. The latest data put the share of land at more than 55% of the end costs of a real-estate development project in the country and more than 75% in Tehran. The Presidential Office has required government organizations to put land at the disposal of the Ministry of Roads and Urban Development for large-scale housing projects.
3. Social housing is any rental housing that may be owned and managed by the government, usually with the aim of providing affordable housing. It can be seen as a potential remedy to housing inequality. As per Clause 1 of the plan for stimulating the development of rental housing of 1998-99, the government was tasked with the supply of at least 10% of all urban residential units per year and paving the way for striking rent-to-own agreements with the applicants. High growth rate of urbanization, the pervasive nature of poverty and low per capita income have hindered the realization of social housing. However, recent changes in the housing market, the rising home prices and rents for low-income families are making the development of social housing urgent, particularly for the first three low-income deciles.
4. The findings of the National Population and Housing Census in the year ending March 2017 show around 31% of country’s homes, 37% of residential units in urban areas and 42% of homes in Tehran are rented. Due to economic hardship, households are moving out to suburban areas and this can give rise to social ills. It is vital for policymakers to reform the traditional leasing system and introduce professional home renting companies.
5. Urban decay is the sociological process by which a previously functioning city, or part of a city, falls into disrepair and decrepitude. It may feature deindustrialization, depopulation, economic restructuring, abandoned buildings and infrastructure, high local unemployment, low overall living standards and quality of life, crime, etc. Despite being stipulated in legislation and Iran’s development plans, less than 20% of the country’s urban decay have been revived. The number of banking facilities granted to these areas has dropped significantly in recent years. From March 2005 to March 2015, only 3% of the resources needed to reverse deteriorating conditions of these areas were provided by the government and the remaining amount came from the private sector, non-governmental public organizations and municipalities. According to the Housing Comprehensive Plan, three million residential units in cities and 2.3 million homes in villages will need to be restored by March 2027.
6. Procedures associated with securing construction permits, which is mired in traditional bureaucratic structure and to some degrees of administrative corruption, pose great challenges to real-estate developers. These procedures take up 40% of the total time from production to supply of a home: 7-10 months out of the total 20-30 months spent on the construction of a building on average. The optimal time based on international standards is close to one month. Improving transparency and reducing the time to issue building permits from related organizations could stimulate housing production.
7. Due to both affordability problem and the aging of the population, which tends to result in more single and two person households, the total demand for a wider mix of housing types will be required in the coming years. This will inevitably lead to a greater demand for smaller housing. From March 2005 to March 2015, the supply of homes with a floor area of less than 50 square meters, those between 50-100 square meters and more than 100 square meters accounted for 8%, 28% and 64% of total homes whereas the demand for these homes was 29%, 39% and 32%, respectively. Discrepancies between supply and demand, given the size of homes being supplied and those needed, must be addressed.
8. Households have both consumption and investment demand for housing. Consumption demand is sensitive to the demand for shelter whereas investment demand is driven by appetite for property within their investment portfolios. Between March 2007 and March 2017, investment demand accounted for 66% of housing demand. This is while from the year ending March 1977 to the year ending March 1987, consumption demand made up close to 80% of total demand for housing. An anti-speculation tax policy like capital gains tax on housing will turn out to be effective, as it will discourage speculative investors, land and house flippers from buying and rapidly reselling properties.
MRC has proposed other recommendations that are worthy of consideration, including increasing home loans in order to cover 50% of the total home price by March 2026 and directing vacant homes into the purchase and rental markets through legal tools such as taxation.
Without government intervention, the current housing problems may well become permanent ones.
