The flood of liquidity has inundated the housing market, drowning the citizens. Yet, policymakers failed to heed warnings on the growth, at breakneck speed, of money supply over years. This was stated by Naser Zakeri, economist, in an article for Persian daily Shargh. Below is a translation of the text.
Paucity of housing, as a national problem, came to the fore in the mid-1960s, when the 4th Development Plan was in force. At first, the problem sprang into existence in Tehran and some large cities as a result of the inflow of emigrants from villages but in the following decades a large part of the country was struggling with the shortage of housing. According to a report published in fiscal 1967-68 by the Plan and Budget Organization, 40% of urban households had one room to live in and 30% had two rooms. In the 1980s, the government managed to solve this problem to a great extent through housing cooperatives. In the following decades, each government tried to resolve this worsening problem in its own approach, but the current state of the country shows those efforts were futile.
Since the late 1980’s until now, governments’ power has gradually declined in the teeth of housing crisis, the problem has compounded by many folds. Just like a wrestler against a ghoul who is delaying the fight and at the same time losing his power gradually. Previous governments have tried various policies to combat this ghoul. Increasing the ceiling on home loans, creation of new towns, land grants under Mehr Housing Project, reviving slums and transfer of state land to applicants were among policies taken by previous governments. Plans like streamlining rental housing market might benefit households who don’t own a home but they cannot be the permanent solution. Resorting to such plans implies that those in charge have failed to deliver the message of Article 31 of the Iranian Constitution [Every Iranian individual and family is entitled to a dwelling appropriate to its need. The Government is bound to provide this, giving priority to those whose need is greatest, in particular peasants and workers, in the implementation of this Article] and they are trying to support families via the likes of this plan.
Paying no heed to the main factor worsening this situation is behind the failure of policies in the housing market. Money supply in our economy has increased at breakneck speed in recent decades. During recessions, when businesses are wrestling with financial hardships, a large proportion of money goes to real-estate market for lack of a better option. The formation of speculative demand in the housing market leads to sharp increase in prices, discouraging low-income households from saving for the future. Had the economic policymakers evaluated the destructive power of speculative demand in the housing market, they would have worked out a solution on how to prevent the flood of liquidity. After doomscrolling the economic news of the past years, you’ll understand that they never felt the apprehension of such a danger. They even welcomed price increases, seeing price growth as an opportunity for state-owned economic and even non-economic enterprises they were in charge of to make profit. In doing so they bolstered the destructive power of speculative demand. Years-long business activities by banks in real-estate market and the transfer of their resources to the market can testify to this reality.
Now we are faced with the consequences of policymakers’ negligence; the flood of liquidity has inundated the housing market at full blast, drowning the citizens. Under the circumstances, mass housing projects in the suburbs or increasing the ceiling on home loans won’t right the wrong. Designers of such plans don’t pay attention to the main problem of housing market, i.e. speculative demand. The first step to overhaul the market is to accept that housing is a necessity good. Such a commodity should not be hoarded; it should not be a tool for its owner to make easy money. Once this principle is clear and agreed upon, the government must do its best to cleanse this market from wandering money. With wandering money out and speculative demand curtailed, the muscles of the ghoul lose their mythological power and the government would become capable of fighting it.
