The Statistical Center of Iran has published a report on the number of construction permits issued in Tehran and throughout the country during the first quarter of the current fiscal year that ended on June 21.
A total of 736 permits were issued by Tehran Municipality in Q1, indicating a 50.6% decrease compared with the previous quarter and a 47.2% decline compared with the same quarter of the year before.
A total of 5,954 homes are expected to be built as a result of the permits that indicate a 48.4% decrease quarter-on-quarter and a 47.2% decline year-on-year. The average number of residential units per permit in the capital city was 8.1.
In Tehran, the total floor area of units in buildings with permits issued in Q1 stood at 1,127,000 square meters, registering a 49.6% decline QOQ and a 45.9% decline YOY.
The average floor area of units per permit in the capital city was 1,532 square meters.
SCI also reported that municipalities across the country issued a total of 29,437 building permits in Q1, registering a 20.4% decrease QOQ and a 15.3% decline YOY.
A total of 90,290 housing units are expected to be built as a result of permits issued across Iran’s urban areas, indicating a 21.8% decline QOQ and a 12.7% 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 17.1 million square meters, posting a 20.6% decrease QOQ and a 16.7% drop YOY.
The average floor area of units per permit was 581 square meters.
Tehran’s Construction Material Inflation at 44.8%
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%.
Compared with the previous quarter, the category of “cement, sand and 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%.
Housing Supply Lower 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 root of the problem goes beyond 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 upgrade their production method and reduce production costs by using new technology. They do not care about promoting productivity and 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.
Government officials have been slow in taking more effective measures. 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 are imperative and the government should place them on top of its agenda.
