The general price index of construction materials for residential properties in Tehran, using 2011 as the base year, grew by 44.8% during the four-quarter period ending June 21, which marks the end of the first quarter of the current Iranian year, compared with the previous year's corresponding period.
The annual inflation of construction material was 55.3% in Q4.
The index stood at 1,544.2 in Q1 (March 21-June 21), according to the Statistical Center of Iran's latest report published on its website. Compared with the previous quarter, which ended on March 20, the index registered a 10.5% decline.
In the fourth quarter of the previous Iranian year (Dec. 22, 2021-March 20), the construction material price index stood at 1,222.5 and registered a 26.3% quarter-on-quarter growth.
The index rose by 43.4% in Q1 compared with last year's corresponding quarter (year-on-year). In O4, the year-on-year index growth was 35.5%.
When compared with the previous quarter, the category of “cement, sand, gravel” registered the highest growth among all categories of construction materials with a growth of 55.8%. This is while “stone” recorded the lowest index growth with 10.9% compared with the preceding quarter.
“Glass” witnessed the highest year-on-year inflation with 92.1% while “ironware, rebar, profile for doors, windows and fences” category registered the lowest year-on-year price growth with 18.2%.
The highest annual price hike was registered for “glass” group with 86.3% and the lowest annual growth was posted by “ironware, rebar, profile for doors, windows and fences” group with 18.2%.
Q4 Construction Permits
The Statistical Center of Iran recently published its findings on the number of permits issued for construction of buildings 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 issued in Q4. The number indicates 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 decline YOY.
The average floor area of units per permit in the capital city was at 1,502 square meters.
Nationwide, 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% increase QOQ but a 15.8% decline YOY.
The average number of residential units per permit across the country was 3.1.
Across the country, the total floor area of units built with building permits was at 21,542,000 square meters, posting a 35.9% increase QOQ but an 18.5% decline YOY.
The average floor area of units per permit was 582 square meters.
Number of Homes 5% Less Than That of Households
Statistics show that the number of homes in Iran is about 5% less than the number of households.
“A significant number of existing housing units are also located in slum areas and need to be replaced, 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, wrote 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 t whether the housing problem in the Iranian economy is really due to a shortage of supply.
Is undersupply the only cause of the rapid rise in housing prices? The impact of shortage on price increases is undeniable but statistics show that the causes of the problem is more than the shortage, but rather the approach toward ownership of existing homes is to blame.
The sudden increase in the number of tenants shows that speculative demand in the housing market has managed to control the market well, driving real applicants out of the market.
The significant 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 such, housing has turned into the best possible asset to convert your money into.
Those who supply and need 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 by building 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 the supplier nor those in need acts professionally and thus neither supply nor demand is real.
The first effect of rearrangement will be 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 by taking into account the purchasing power of applicants.
News of the past month suggests that government officials seem to have better 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, you can say that neither the financial state of the government nor the special social conditions leave leeway for 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 necessary; the government should place it on top of its agenda.
