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Steep Decline in Housing Sector

Steep Decline in Housing SectorSteep Decline in Housing Sector

Increasing financial discipline should be followed by effective and workable policies to pull the lethargic housing market out of recession, the deputy director of Iran Urban Economics Scientific Association said Wednesday.

Mohsen Tabatabaei Mazdabadi said that the number of houses built in Tehran this year (started March 21) fell by 50% while the fall is close to 65% across the country. “This market decline is the result of the government’s quantitative tightening,” ISNA quoted him as saying.

The share of housing in total lending by banks was down from 12.9% to 10.1% in the first four months of the fiscal year as housing loans amounted to 9.5 trillion rials ($317m at official exchange rates). The amount of loans last year was 10.4 trillion rials ($347m).

Tabatabaei said, “Quantitative easing by successive governments stimulated the market, though the policies eventually increased the money base and pushed up inflation.”

The recent declining patterns in inflation should be followed by policies to boost the sluggish housing market because such measures can help “lead the economy out of recession,” the official added.

According to data, he said, the housing sector’s contribution to gross domestic product was 2-5% in last decade and it accounted for 13% of the total jobs. “Some studies indicate that construction work for 100 square meters creates jobs for six people.”

Market pundits say liquidity has been increasing while spending for low-cost housing projects and urban development is on the decline. “Data has it that there is a 20 trillion rials ($661m) increase in monetary base, so cutting funds for the huge Mehr housing projects was indeed not effective and did not produce the desired results.”

The Mehr project was launched during the former administration to build two million housing units over five years for the low-income strata. But the project emerged as a major controversy due to heavy spending, extended delays and lack of transparency.

Flaws and failings of the multi-billion dollar project were made public by the Rohani administration after it took office in 2013 saddled with minus growth and an almost empty treasury. Reports later emerged that in most of the Mehr complexes, especially in the provinces, low quality material had been used and some houses were unlivable.

Problems were associated with structural problems, engineering flaws and lack of basic oversight by the government and relevant organizations that had failed to uphold merit in granting contracts to builders.

The president once said in a live TV interview that “the Mehr project was largely responsible for the negative GDP and piling up budget deficits.”  After political opponents of the government took offense at the funding limits imposed on the massive but poorly managed housing project, it openly committed itself to wrap up the project by 2017 with more openness and transparency.

Financialtribune.com