Iranians struggle to afford housing as prices soar
Trying to boost affordability, Iran’s government has launched a massive housing project. But many are sceptical.
Tehran, Iran – Walking down the streets of southern Tehran, 40-year old Mehrdad checks in with real estate agents. It’s a ritual he’s cultivated over many months in a so-far fruitless search for a modest apartment in the capital of Iran.
“I had saved money for many years to eventually buy an apartment for my family with the help of a loan from a bank. But the prices have gone up like crazy,” he told Al Jazeera, asking that his surname not be published in order to protect his privacy.
Mehrdad’s frustrating quest for affordable housing is an increasingly common phenomenon in Tehran, where middle- and lower-income residents struggle to find suitable accommodation in a residential housing market roiled by inflating prices and tight supply.
The average purchase price per square metre of residential housing units in Tehran soared 91.5 percent in the 12 months ending on July 21, 2019, according to the data released by the Central Bank of the Islamic Republic of Iran.
The situation has become so acute that aspiring homeowners who qualify for mortgages can see the market move just beyond their financial grasp by the time their applications are approved.
“Before the prices went up, I could have purchased a 100-metre apartment around Jomhouri Square [the central Tehran area] if my loan was approved earlier,” said Mehrdad. “Now I can’t even afford a 70-metre apartment in the southern parts of the town, where the prices are lower.”
Too much demand, too little supply
Iran needs to build one million new housing units per year to keep pace with demographic trends, such as marriage, according to the Statistical Center of Iran.
But the bigger issue for aspiring low- and middle-income homeowners is the type of housing being built in Tehran, where real estate developers have shown a preference for high-end construction aimed at the more affluent.
“The units built over recent years do not match the demand of the buyers in terms of size and location,” said Mehdi Ravanshadnia, an associate professor of construction at the Islamic Azad University.
“Average houses that have been constructed in Tehran in recent years were over 130 square metres, whereas the average demand is for units that are between 70 to 80 square metres,” Ravanshadnia told Al Jazeera.
According to the latest census conducted in 2017, roughly 11 percent of the total housing stock in Iran – some 2.5 million houses– are unoccupied, including around half a million in Tehran.
Some of those properties were bought by wealthy Iranians as an investment and to hedge against currency depreciation. Some are just too big and posh for the average Iranian family to afford – or were built in areas that lack the necessary infrastructure to support an ordinary household.
US sanctions and legacy issues
Beyond builders prioritising premium properties over low- and middle-income housing, the problems plaguing Tehran’s residential property market also stem from a confluence of geopolitical forces and home-grown government policies.
The rial has lost some 60 percent of its value since last year, when United States President Donald Trump unilaterally withdrew from the Iran-nuclear deal and re-imposed harsh economic sanctions on Iran.
Though the government of Iran’s President Hassan Rouhani is bearing the brunt of criticisms surrounding the lack of affordable housing in Iran, the roots of the current crisis stem from the housing and banking policies of Rouhani’s predecessor, former President Mahmoud Ahmadinejad.
Ahmadinejad launched the ill-conceived Mehr Housing Project in 2007, promising to build some 2.2 million housing units for low-income Iranians. By the time Ahmadinejad left office in 2013, less than 700,000 units had been built, leaving Rouhani’s administration to finish the job and meet all of the project’s financial commitments.
The proliferation of credit institutions and shadow banks under Ahmadinejad also led to astronomical interest rates as institutions vied for customer deposits. Eye-watering rates flooded Iran’s banking system with too much money and quasi-money (assets that can be easily converted into cash), which fueled inflation – including the cost of housing.
Government’s new measures
The current government has made some missteps, such as failing to enforce a 2015 law to levy a tax on unoccupied properties, and increasing the amount of loan products for first-time buyers – which has further stoked demand in a tight market.
But Rouhani’s administration is trying to tackle the problem of housing affordability with a multi-pronged strategy.
The government has promised to complete the remainder of the original 2.2 million promised low-income Mehr housing units by the spring of next year. And a plan is in the works that will allow government employees to move into a home right away and pay it off in installments over 15 years by funnelling a portion of their salaries into a special fund.
The centrepiece of Rouhani’s new housing initiative is the recently launched National Action Plan to incentivize the private sector to build 400,000 housing units by spring 2021.
The plan entails selling land to construction firms at discounted rates and providing them with low-cost financing to purchase materials. By reducing the cost of building residential properties, the government hopes to boost supply, curb inflation and make housing more affordable for Iranians with modest incomes.
Many Iranians are sceptical, given the failures surrounding the Mehr Housing Project. But housing economist Ravanshadnia said that though Rouhani’s initiative bears some resemblance to his predecessor’s, there are crucial differences.
“It appears that the focus of these new plans is the middle-class population, whereas the focus of [the] Mehr project was the lower-class families,” he told Al Jazeera.
Ravanshadnia added that the new plan appears to avoid other mistakes that hampered Ahmadinejad’s Mehr project, such as inferior building materials or constructing housing in areas with insufficient infrastructure to support thriving communities.
“The main effect of government plans will be seen in the next two or three years, when the new houses are built,” said Ravanshadnia.
But back in Tehran’s more affordable southern districts, Mehrdad is losing patience as he leaves yet another real estate agency with no viable leads on a home he can afford.
“The problem is not with these [government] plans,” he said. “The main issue is the gap [now] between our wage and the actual inflation, which is growing bigger and bigger every year.”
This article is part of AJ Impact’s ongoing series about housing and its many complex business, technological, and political dimensions. A global demographic shift is taking place as enormous numbers of people migrate to urban centres looking for places to live and work. Click here to read past articles about housing in Berlin, New York City, Lagos, Nigeria or Chicago, US.