Economy, Domestic Economy

Housing Market Unimpressed

Housing Market UnimpressedHousing Market Unimpressed

Contrary to what was initially expected, the framework nuclear deal reached between Iran and the P5+1 group in the Swiss city of Lausanne on April 2 failed to stimulate the domestic housing market, which has been in recession over the past couple of years.

While some economists argue that for the housing market to be stimulated one must wait until a final nuclear agreement is reached by the June 30 self-imposed deadline, others believe that the variables that influence the housing market are to a large extent dependent on the decisions that the government makes, rejecting the notion that a nuclear settlement with the West could bring about stability to the volatile sector.

To the latter category belongs Gholamreza Salami, a senior advisor to the minister of road and urban development.  In an article written for the Persian economic daily Donya-e Eghtesad, he said that the housing market has been suffering from the so-called Dutch disease – referring to the apparent relationship between the increase in the economic development of natural resources (oil in case of Iran) and a decline in other major sectors –  as well as mismanagement long before the West imposed its economic sanctions against the country over its nuclear energy program.

“No one should expect a long-term impact from the Lausanne deal, because what affects and continues to affect the housing sector and the ongoing recession in the housing market has nothing to do with the nuclear issue and a possible final nuclear deal,” he said.

According to Salami, one reason behind the recession in the housing market is “the huge gap between the people’s purchasing power and the prices in the market.”

He believes the government should identify the underlying causes of the housing recession while at the same time crafting proper strategies to tackle the shortcomings in the housing market.

“One should not expect that an external element such a nuclear deal will solve all the existing problems in the housing sector,” he added.

One of the major characteristic of the Dutch disease is that the prices increase unreasonably, Salami said, adding that substantial revenues that Iran received from oil sales during the past years are now taking their toll on the economy and the housing sector in particular.

“Housing prices increased as a result of the flooding oil windfall, and as a result it is the people who pay the price for the malevolent economic disease,” he concluded.