President Hassan Rouhani is scheduled to launch a project for the construction of 150,000 homes of the so-called “National Initiative to Build and Deliver Homes” via video conferencing this week.
Nearly 20,000 of these residential units will be built in new satellite cities, including 7,134 in Fouladshahr in Isfahan Province, 4,448 in Parand in Tehran Province, 2,762 in Golbahar in Khorasan Razavi, 1,547 in Sahand in East Azarbaijan Province, 1,497 in Sadra in Fars Province, 800 in Amirkabir in Markazi Province, 520 in Hashtgerd in Alborz Province, and 150 in Pardis in Tehran.
Out of a total of 400,000 houses planned as per the Roads and Urban Development Ministry’s initiative, New Towns Development Company will build 200,000, the Urban Development and Renovation Company 100,000 and the Housing Foundation of the Islamic Republic of Iran will construct the remaining 100,000 residential units over three years, Fars News Agency reported.
With the planned construction of 13 new towns, the number of Iran's satellite towns will reach 30.
At present, a total of 17 satellite towns have been created in 11 Iranian provinces.
The optimal population of existing satellite towns is estimated to be 3.8 million residents, almost 80% of which capacity remain unused.
The estimated population of first-generation residents of new towns was put at 280,000 in March 2006-7, 420,000 in March 2011-12 and 776,000 in 2016-17.
New towns have experienced an 8.8% rate of population growth between the fiscal 2006-7 and fiscal 2011-12 and 12.6% between fiscal 2011-12 and fiscal 2016-17.
Their population is estimated to increase to 1.3 million in the fiscal 2021-22 and over 2.5 million in the fiscal 2026-27.
Inflationary Recession
Iran's housing market is bracing for inflationary recession because of a widening home supply deficit, according to Fardin Yazdani, the Comprehensive Housing Plan’s deputy for research.
Referring to increasing home prices and the declining number of home deals, Yazdani said the main reason for this is that the housing sector has failed to boost production.
"In other words, despite strong demand in the housing market over last year, the supply side has failed to catch up," he was quoted as saying by the news service of the Ministry of Roads and Urban Development.
The Statistical Center of Iran's latest report shows the average price of each square meter of residential floor area surged by 59.8% during last year’s Q4 on a year-on-year basis. Compared with the previous quarter, prices indicated a growth of 11.5%.
The minimum price of each square meter of residential floor area across urban areas during last year's Q4 stood at 864,000 rials ($7.4) with the maximum price registered at about 570.98 million rials ($4,900). The average price was about 29.26 million rials ($251).
In terms of the number of deals for residential floor areas, last year’s Q4 saw a decline of 16.6% compared with the Q4 of previous year. Against the Q3 of last year, the number of such deals registered an increase of 10.3%.
SCI put the average dealt floor area at 110 square meters while the average age of residential units was 11 years.
High Prices of Land, Construction Materials
Yazdani referred to the high prices of land and construction materials as the main reason for the lack of housing production.
"Under the circumstances, builders are not finding the housing market as lucrative as other markets," he said.
The general price index of construction materials for residential units in Tehran rose 62.2% in the first quarter of the current Iranian year that ended on June 21 compared with last year's corresponding period.
According to the Statistical Center of Iran's latest report published on its website, the index stood at 406.9 during the period under review.
The figure indicated an increase of 14.2% compared with the previous quarter, i.e. the fourth quarter of last year, which ended on March 20, 2019.
During the 12-month period ending June 21, the index grew by 56.3% compared with the previous year's corresponding period.
Yazdani expects the increasing home prices to lose momentum in the months to come.
"Should the supply of homes catch up with demand, we can expect the market to find balance," he concluded.
Need to Increase Home Supply
Yazdani’s remarks were earlier echoed by Hossein Afshin, an official with Majlis Research Center.
“The supply of homes has decreased by 50% over the past five years. However, there is no guarantee that the housing affordability problem will go away, even if the government’s new initiative to help build 400,000 new homes proves to be successful,” he was quoted as saying by ILNA recently.
Afshin noted that from the fiscal 2006-7 to fiscal 2015-16, as many as 10.5 million homes were built in the country but only 2.5 million were put at the disposal of people.
The official believes that the newly-introduced capital gains tax would help contain rising home and rent prices.
"The reason that this idea has been put forward now is that speculative activities are more prevalent than even in our country and yields high profits, leading to the neglect of manufacturing and employment," Rahim Zare', a member of Majlis Economic Commission, said.
"We [at the parliament] wish to provide the government with a new political leverage to manage its resources. Capital tax gain, which is a value added tax on the ratio of yields on purchases and sales, will help reduce inequality and price fluctuations in the property sector."
Iran's housing sector has long been subject to speculative trading and prices have seldom remained stable. This has especially been the case since a currency crisis spurred by the unilateral US withdrawal from Iran's nuclear deal with world powers has led to significant property price hikes.
Although most speculations and hedging have materialized in the foreign exchange and gold markets in recent months, some have also opted for the housing market to protect or multiply their capital.
"Globally, households spend 7-17% on housing, but that figure in our country is at a minimum of 35% and goes up to 80%," the MP said.
He added that genuine consumer demand for housing far outweighed speculative demand around the time of the Islamic Revolution and between the fiscal 1976-77 and 1986-87.
Consumer demand had an 80% share in that period. However, the equation almost reversed between the fiscal 2006-7 and 2016-17 when speculative demand accounted for a whopping 66% share of all property deals.
Zare' provided further insight about how Iranians have fared worse during the past few decades in terms of homeownership.
He noted that if an average Iranian saved one-third of their salary in 1992, they could purchase a home after an average of six years. This waiting period jumped to 10.3 years by 2015 and stands at an unbelievable 31 years at present.
"We wish to incentivize housing production through this initiative in order to boost supply, because speculation falls when supply rises," the MP said. "Yields from the capital gain tax initiative will be spent on increasing production in and support for the housing sector."
Vahid Azizi, an economic expert, says many speculators purchase a house only to sell after less than two months.
"Through exemptions that have been considered in the scheme, only a minority of housing deals—those being conducted with the aim of speculation—will be subject to it," he said.
