Budget Bill Inadequate for Addressing Housing Woes

Ahead of lawmakers’ vote on the government’s proposed budget for the fiscal 2018-19, the parliamentary research center has analyzed the housing and urban development portions of the budget, deeming it a highly faulty roadmap that will fail to alleviate deep-rooted issues in the ailing sector, which accounts for over 5% of the country’s GDP.

“A review of policies and programs undertaken and their compliance with the legal mandates in the housing and urban development section of the budget bill indicate that the predicted measures and sources of credit will be unable to resolve the challenges and problems of this sector and lack the necessary regulations and credits to meet the needs of the sector,” Majlis Research Center writes in its analytical report published on its website.

The budget bill “showcases the same yearly weaknesses and even lack of behavioral organization in drafting the budgetary articles and measures [concerning the housing sector]”.

According to the think tank, the budget bill does not fully adhere to the qualitative and quantitative goals set in the Sixth Five-Year Development Project (2017-22) and therefore if it is approved as it is, it will surely fall short of fulfilling its commitments to the country’s housing vision.

Renovating and revitalizing at least 10% of distressed urban areas, organizing population demographics, committing to building various kinds of housing projects (e.g. Mehr Housing, Social Housing) and drafting and implementing schemes in line with the current and future needs of urban and rural areas for promoting sustainable development were the main points highlighted by the research center.

As MRC outlines, the fiscal 2018-19 budget is “completely bereft of any fundamental approaches to bring about a housing market recovery, address demographic changes and make concerted renovation of distressed areas” among other things, and as evidence, points to a variety of articles injected into the budget without due consideration.

For instance, a budget clause decrees that agent banks are allowed to allocate foreign exchange loans to investors in the private sector, cooperatives and municipalities for development projects from resources allocated from the National Development Fund of Iran.

The clause, however, fails to mention the volume of foreign exchange loans in addition to their interest rates. It designates municipalities and local governments as the entities in charge of guaranteeing projects without bestowing them any other authority that MRC says could have adverse affects and proposes the government’s Economy Council as a suitable replacement.

  Proposed Measures

The parliamentary think tank then lists a number of measures that could be added to the budget law.

It calls for the Ministry of Roads and Urban Development to be bound by law to attract local and foreign investments for renovating at least 10% of all distressed areas by the end of the next fiscal year (March 2019) and employ the latest in construction technologies.

It also proposes that at least 50% of all major home construction plans are implemented in distressed areas and calls on Roads Ministry, Interior Ministry and municipalities to be obliged to stick to all standards of urban development based on current and future living needs, especially as the country is vulnerable to earthquakes.

In another section of the report, MRC reviews credits allocated to the housing and urban development sector and enumerates entities that have had their budgets increased or decreased.

The Roads Ministry has been awarded a 2.12% budget increase to bump up its credits for the fiscal 2018-19 to 86.43 trillion rials ($1.9 billion) while a couple of urban development companies affiliated with it are set to receive a helping hand as well.

On the other hand, the ministry’s research center in tandem with a slew of municipalities of major cities, including those of Tehran, Mashhad and Isfahan, are to experience budget cuts.

In the concluding section of its report, the think tank points out that similar to previous years, the housing and urban development sector is impacted by a variety of factors, namely the rising foreign exchange rate in the budget law, which will prepare the ground for increasing the finished cost of building homes, weakening the purchasing power of households and continuing the recession in this sector.

Therefore, with an eye toward other influential factors mentioned in the report, MRC proposes other reform measures in the fiscal 2018-19 budget law.

It stresses on the importance of correcting the system of pricing housing units, boosting productivity in various stages of construction and allowing the government’s debts to municipalities to be swapped with the debts of municipalities to the Social Security Organization and the Iran National Tax Administration.