Housing problems in Iran are getting complicated by the day.
The Iranian month ending June 21 is the peak relocation season. As we speak, many Iranians are struggling with rent distresses.
According to government statistical agencies, tenants spend up to 48% of their total income on housing expenses while unofficial statistics put the percentage at 60-70% in metropolises.
President Ebrahim Raisi and his economic team pledged to improve real-estate development during their electoral campaign. They promised to build one million housing units annually [four million homes over the four-year term] to send the message that the government intends to improve supply and demand in the housing sector.
However, many economic analysts noted that the country’s economic statistics and conditions were not compatible with the government’s promises, Mohammad Reza Monjazab, an economist, prefaced his write-up for the Persian daily Ta’adol with this note. A translation of the text follows:
The construction of four million housing units in four years in a country where the total number of homes amount to 21 million units shows that the government should deliver 16% of the total in four years.
Obviously, an ambitious plan like this requires a big budget that was not available under sanctions. Two years into the administration of the sitting president, not only such promises have not been delivered, but also a large number of residential units have been added to the many dilapidated buildings.
The government responded to these problems by proposing random plans. For example, the government mandated that people do not need to pay a commission to real-estate agencies for drawing up their leases. Or, that landlords cannot increase rents by more than 25%.
Recently, the government has announced that it is seeking to control increases in rental rates. The decision has been repeated many times in the past, but in practice, it has not produced a favorable result. Such a decision-making shows that the government is looking for temporary and ineffective plans instead of solving the supply and demand problem.
Key Factors
Supply and demand of rental units and housing prices are key factors that determine and change the rental rate. The devaluation of the national currency in recent years has been the third factor in the increase of rental rate. Now, if the government seeks to keep the rental rate lower than the equilibrium rate by fiat, two short- and long-term effects on the rental rate will be inevitable.
Since it is not possible to increase the number of rental units and their supply remains fixed, a lower price [lack of supply of rental units] along with control will reduce the elasticity of demand and make it more vertical in the short run and the housing price in the black market will be much higher than the market equilibrium rate.
In the long run, the possibility of increasing the supply of rental units will make the slope of the supply of rental units positive and as a result, the mandated price which is lower than the breakeven point will make the supply and demand curves more vertical. In this case, the increase in rents will be much sharper in the long term than in the short run.
The appropriate policy is to manage the supply and demand of this market through different market-oriented strategies which, in the long run, can direct supply to the right and demand to the left.
Studying similar cases in successful countries is recommended. Detailed studies of developed countries show that using the capacities of the private sector for real-estate development is one of the most important strategies for solving the housing problem.
Next, the government should create capacities so that the private sector takes over housing construction instead of the public sector. Directives and government plans will not help solve the problems of the housing sector.
