The significant jump in home prices over the past three decades has increased the number of renters and the share of housing cost in total household expenses.
It has also turned on the engine of double-digit inflation, expanding the dimensions of poverty in the country. Therefore, streamlining the rental housing market and curbing the rise in rents should be one of the key policies of the government, said Nasser Zakeri, an economist, in an article for the Persian daily Shargh. A translation of the text follows:
Setting a ceiling on rent increases was a positive measure taken by the government in the past few years. However, the rental market has not paid much attention to this guideline because of the lack of a strong implementation commitment and supervision. In other words, homeowners have been able to increase the rent of their property as much as possible, thanks to their high bargaining power and the weak position of tenants.
The nature of the rental housing market in our country is different from its counterparts in developed countries and even many developing countries. The rental housing market in Iran is thriving not because of the reluctance of a group of citizens to lock up their assets in the form of real-estate or the renters’ desire to migrate from one city to another, but only because of their financial inability to buy a home.
In fact, the existence of a strong speculative demand in the real-estate market has pit the real need for housing against a capable competitor. Real consumers of housing are unable to secure the housing they need at a reasonable price. They have to rent a home they were unable to buy from “investors”.
The government’s failure to pay attention to this pivotal point has inflicted losses on low-income groups. The special situation of the rental housing market and its guaranteed benefits for owners, given the rapid increase in property prices over time and the rise in rents, as well as the fact that other economic sectors do not generate profit for capital owners, have turned real-estate into a very favorable market for capitalists.
Under the circumstances, the least the policymakers should do in the short run is not to allow the winners of home-buying competition, i.e., ‘investors’ in the residential real-estate market, to achieve a brilliant victory in the rental market and completely unravel the household economy of low-income groups.
Determining the ceiling on rent increase has been a correct and valuable measure but it was a small part of a series of reform measures that the government is obliged to enforce to fix the situation. Loopholes allow homeowners to bypass the laws; they can simply and easily increase rents. Therefore, this valuable measure has not been able to help the low-income people as it should.
The responsibility of the government in the housing sector is far beyond the regulation of the rental housing market. As per a forgotten article of the Iranian Constitution (Article 31), the duty of the government is to provide housing in accordance with the needs of all households. This small move can prepare the ground for a major reform in the economy.
On the one hand, by reducing the share of housing cost in the total expenses of households, the well-being of low-income deciles will improve and the first step toward social and human development will be taken. On the other hand, by imposing serious restrictions on the real-estate market, the government reduces the attractiveness of this market for capitalists. This, along with efforts to increase the attractiveness of productive investment opportunities, for example, adds to the incentives for manufacturing and industrial investments in free and special economic zones. It can gradually make capitalists believe that the continued presence in the rental market, which troubles real buyers and those in need of housing, is not a cost-effective and economic move.
The judicious use of tax tools in the real-estate market can be a positive move as well. Taxation can even be used as a guarantor for the implementation of the rent-ceiling measure that does not allow violators to bypass the law. For example, if homeowners were required to deposit their high rent receipts in the form of an exponential increase in taxes to a fund called the tenant protection fund, they would realize that they can no longer boost their income from unusual rent increases.
