Domestic Economy

Slow but Meaningful Progress in Social Housing

Slow but Meaningful Progress in Social Housing Slow but Meaningful Progress in Social Housing

The government is inching forward with the implementation of its new social housing plan.

Already last year, the Rouhani administration seemed determined to push through with the much-needed social housing provision. However, a collapse of private investment and a severe budget squeeze as well as efforts to complete the older Mehr project have so far shelved its implementation.

This looks set to change this year, however. Days after the start of the Iranian New Year, Minister of Roads and Urban Development Abbas Akhundi announced that social housing would be amongst the top priorities of his ministry.

Iran is facing a housing crisis as large numbers of new young families enter a heavily inflated market strapped of its capacity to build lower-income housing fast enough.

A survey published by the ministry of roads and urban development last year indicated that 2.4 million families of the poorest four deciles of Iranian society do not own a house.

Mahmoud Jahani, an expert on housing issues, argues that although 30 to 35 percent of these families might be able to buy a house with the current support the government is providing, at least 20 percent is in dire need of new social housing, according to an interview with Iran newspaper. Jahani also points out that neither the state nor the private sector was able to provide enough social housing when the number of applicants peaked in 2012. Consequently, more applications have accumulated.

Over the past years, housing has come to constitute an increasingly large share of household incomes. Twenty years ago, the share of housing in average household expenditures was 26 percent. Last year, this figure reached 34 percent, more than one-third of average household expenditures.

The formal framework for the Rouhani administration's social housing plan was approved in last Iranian year (ended March 20). Annually, it would add 125,000 families, all belonging to the four lowest income deciles, to one of three protection schemes. These schemes include ownership, lower rents and cash rent subsidies. The first phase of the plan would see the creation of 45,000 new residential units.

The social housing plan would be led by the private sector, with the state taking on a supervisory and supportive role. Financing for the project, which is expected to require up to 35 trillion rials annually (about $1b), will come from three banks – Maskan, Refah and Tose'e Ta'avon.

Nevertheless, Labor Minister Ali Rabiei, has acknowledged that cooperatives will also be involved, stating that "as regards [the construction of] social housing, we will allocate a part to cooperatives and we will certainly exploit their capabilities," according to Mehr News Agency.         

> Lessons From Infamous Mehr Project

The Rouhani government hopes that the new plan can dodge the accusations thrown at the Mehr social housing project, which was instigated in 2007 by former president Mahmoud Ahmadinejad.

Mehr has been blamed for fanning inflation. Minister of Economy Ali Tayyebnia stated that up to 42 percent of the Central Bank's money printing has been channeled to finance Mehr.

While Mehr was a large nationwide program to build new affordable housing blocks, the new housing plan has more small-scale ambitions. Contractors are encouraged to subscribe individual units to the scheme, rather than complete buildings.

The poor designation of construction plots has been another limitation of Mehr. Projects were frequently instigated on cheap, unused plots of land far removed from public facilities. Tenants found that their houses lacked access to water, gas, electricity and other basic facilities like schools. The current housing plan aims to stimulate investment in poor and dilapidated urban areas, as opposed to the distant suburbs.

"Due to the state's limited financial and logistic capacities, the housing program is focused on supplying housing to low and middle income deciles in villages, as well as renovate and improve dilapidated urban areas," Mehr News Agency quoted deputy minister of roads and urban development, Hamed Mazaherian, as saying last week.

"The first priority of social housing is that we don’t want to develop the boundaries of the city and allow it to expand beyond its current contours," said Akhoundi.

Another difference with Mehr is that the current project will be grounded on extensive bureaucratic preparations. Anybody who did not own a house could subscribe for Mehr, often resulting in richer households managing to get their hands on a house before their poorer counterparts. The Ministry of Cooperatives, Labor and Social Welfare now looks to complete the income data already collected by the Imam Khomeini Relief Committee, pension funds and State Welfare Organization. The aim is to restrict new social housing to the lowest four income deciles and prevent adverse practices that would advantage richer over poorer households.

Finally, the Rouhani administration wants to prevent further social segregation. In an agreement signed between the ministry of labor and the ministry of roads and urban development, one of the "red lines" of the project was named "the segregation of low-income from middle and rich income families." New social housing projects require households below and above the fourth income deciles to live together in one building. Nevertheless, some experts have argued that this requirement might be undone by the project's focus on poorer urban areas. Some urban areas could see housing prices fall by as much as 30 percent as supply increases, which would almost invariably push richer households out of these areas.

The finalization of the new social housing plan could set the framework for future social welfare programs in Iran. Successful implementation, however, will depend on more than lessons from past mistakes. It will hinge too on how effectively the private sector commits to the creation of social housing.