Domestic Economy

Tehran Home Prices Increase Astronomically Within 5 Yrs.

The exorbitant increase in prices came, as minimum wages increased slightly during the same period
Tehran Home Prices Increase  Astronomically Within 5 Yrs.
Tehran Home Prices Increase  Astronomically Within 5 Yrs.

According to a new report released by the research arm of the Iranian Parliament, average home prices in Tehran increased by more than 950% during the past five years.
Moreover, 45% of urban households did not have access to affordable housing, which share was as high as 79% in Tehran, the Majlis Research Center said.
The astronomical increase in prices came as minimum wages increased slightly during the same period.
“The conditions are even more severe and complicated when it comes to rental housing, as tenants are facing increasing eviction,” the report reads.
MRC mentioned commonly cited causes for the crisis in the housing sector, such as the inadequate supply of homes and land in urban areas, which in turn stems from the decline in new constructions and increase in population and urbanization, as well as migration to metropolitan areas.
But the center says reducing the causes to inadequate supply has placed policymakers in the so-called “blind supply” trap, i.e., supplying new homes that are not commensurate with demographic changes and financial means of households.
Lack of supervision over the supply side has given rise to speculative practices in the market, the report added, referring to home buying as a means of investment that has increased demand.


Gov’t and Housing Crisis

Economist Nasser Zakeri recently discussed the same subject in an article for the Persian daily Shargh and said the government is to blame on three developments related to the housing crisis in Iran. Excerpts follow:
The first event is the exorbitant increase in the volume of liquidity. Over the last four decades, liquidity has increased more than 9,000 times. 
The second phenomenon is the very asymmetric distribution of liquidity among citizens. In a situation where many citizens were facing numerous difficulties even to get a small loan, "special" customers of the banking network were given huge loans with exemplary ease and they don’t even bother about repayment. As a result, a very large volume of liquidity was provided to a very small segment of the society. 
The third event was the smooth influx of liquidity into the housing market. In a situation where the economy was caught in a recessionary trap under the influence of foreign sanctions and domestic mismanagement, the owners of liquidity turned to purchase real estate as a low-hassle and high-yield business and entered this market with their high purchasing power, which resulted in a significant increase in housing prices.
In all the three cases, the government has a special place. The increase in liquidity is affected by the wrong budgetary policies of governments over several decades. Governments have increasingly relied on the pernicious method of financing their spending by running up budget deficits.
On the other hand, the unequal distribution of liquidity is also the result of the wrong executive and administrative methods of governments. Meanwhile, governments should have moved in the direction of reforming these methods and replacing them with more efficient approaches, but this reform movement has been forgotten; on the contrary, every government has added to the inaccuracy of common methods as much as possible. 
In addition, the flood of liquidity to the real estate market is also the result of the government's harmful neglect of its main duties. The government should never have allowed housing, as one of the most essential goods needed by citizens, to become an "easy-to-sell commodity". 


Conflict of Interests

In another article, Zakeri traced the sources of the crisis to what he calls “conflict of interests”.
“The boom of real-estate development in large cities, especially in 1960s Tehran, and the inaction on the part of government officials in the face of housing challenges can be seen as one of the first cases of conflict of interest in the formation of the housing crisis. In those days and when the migration to Tehran had accelerated, some influential capitalists who had connections with the ruling power, began to accumulate wealth via buying and selling large plots of land located within of Tehran and its suburbs,” he said. 
“They forced the city administration to make decisions that served their interests and discouraged the officials from putting together a serious plan to deal with the housing problem. In fact, their interests depended on the government’s inaction regarding the difficulties of those in need of housing in Tehran. These big urban land traders considered the real-estate business their backyard; they did not allow government officials’ decisions and measures undermine their profitable business. 
“Now, nearly six decades have passed since those days. With the expansion of the housing crisis, it seems that once again the society is caught in the trap of conflict of interest.”


Macro-Scale Perspective

The state of housing market is contingent on specific economic and non-economic conditions on a macro scale, says Ahmad Tavalla, secretary of Real-Estate Developers Association of Isfahan, explaining that it is not possible to improve the situation only from within the housing market. 
“In fact, the sharp and continuous growth of construction costs and even the increase in speculative and non-productive activities are the result of the sentiments in other markets, currency fluctuations following the increase in inflation, and economic and non-economic risks on a macro scale,” he wrote for the Persian daily Donya-e-Eqtesad.
“If the policymaker seeks to solve the root cause of the crisis in the markets, including the housing market, they should try to direct capital toward production in all sectors, namely, housing, agriculture and industry. It is also necessary to curb the unbridled growth of construction costs by trying to minimize and eliminate inflationary expectations caused by economic and non-economic risks at the macro level. In fact, increasing production and directing money to production is the only factor that can control the economic losses caused by economic turmoil in the property markets. In addition, any measure that can limit speculative and unproductive activities in the markets can be useful and pave the way for relative improvement of the economic situation.”
Tavalla noted that as long as the current situation persists and speculators are always moving funds from one market to another, there is no hope for the improvement.
“The macro-level policymakers need to first increase the risk of speculative practices and control unproductive activities. As long as the general economic and business conditions do not improve and inflation and inflationary expectation are not controlled, there will not be much improvement in the markets, including the housing market,” he said.

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