THE WORSENING HOUSING CRISIS IN IRAN

Number 08● 09 January 2007

The following review explores Iran's socio-economical difficulties by focusing on the country's profound housing crisis. At present, it is almost impossible for young Tehranis to afford the purchase of a home without financial assistance from their parents. This problem is not exclusive to lower-class residents; the Tehrani middle-class is greatly affected by towering housing prices as well. Residents of the middle-class neighbourhood of Sadeqiye in Tehran report that nearly all their contemporaries rent instead of purchasing homes, as meeting even the down payment of mortgages demands significant personal loans.

To complicate matters, the inability to purchase a home bears influence on the capacity of some young Tehranis to marry and form families. Young women are increasingly reluctant to marry men who cannot afford home ownership or rental. Whereas in traditional Tehrani society it was more acceptable for women to move in with their parents-in-laws, today many young women refuse such arrangements. At the same time, men who are forced to live with their in-laws for financial reasons are referred to by the derogatory Persian term Damade Sare Khuneh, (literally: "house-sitting son-in-law") leading few men to favour this option.

Every year, 800,000 new families are formed in Iran, while only around 450,000 housing units are constructed. A three-bedroom apartment in the mid-Tehran neighborhood of Shahr-Ara, which was sold for $3000 in 1990, is now worth $25,000. Prices increases of 2000% over the last ten years have been reported in the upscale Tehrani neighborhood of Zafaraniyeh. Meanwhile, incomes, especially for the working class and civil servants, have barely improved. In fact, due to high levels of inflation, many workers' incomes and wages are actually losing their value. This trend has made rents for housing in low-income neighborhoods such as Yakhchi-Abad a severe burden for the poor.

Iran, especially Tehran, has had a housing problem for many years, dating as far back as the days of the Shah. The problem, however, has never been as acute as it is now.

Following the Islamic revolution of 1979, especially in the aftermath of the Iran-Iraq war (1988), Iran's housing situation worsened significantly. At that time, the size of Iran's population was increasing following rising birth rates in the early 1980s, and many young men returning from war were looking to get married and settle down. Furthermore, according to UN figures, in the early 1990s, Iran was housing a higher number of refugees than any other country. The presence of refugees, mainly from Iraq and Afghanistan, also pushed rent prices up, leading to public dissatisfaction, and put further pressure on the government to construct additional units.

To make matters worse, policy flaws also contributed to this crisis. Prior to the revolution, banks provided loans directly to the buyer for the construction of new homes. After the revolution, loans were given directly to construction companies. This has given construction companies more power in determining prices and the quality of housing units, at the expense of the consumer.

The post-war government of President Ali Akbar Hashemi Rafsanjani (1989-1997) focused on other priorities and did not alleviate this impending crisis. Instead of investing in the construction of cheap and affordable housing, it focused on the reconstruction of the southern parts of the country, whose civilian and economic infrastructure had suffered damages which according to some estimates reached $250 billion. A massive earthquake in north-western Iran in 1990 left 40,000 dead and hundreds of thousands homeless. This, in addition to low oil prices, made housing even less affordable. This problem continued during Mohammad Khatami's presidency (1997-2005). By then, the excessive borrowing and money printing policies of Rafsanjani had forced both inflation and interest rates to rise. This meant that not only did housing become unaffordable, so did the cost of borrowing.

President Mahmoud Ahmadinejad's administration has been dedicating more attention to this problem than his predecessors. Upon entering office, he established the $1.3 Billion Emam Reza Love fund, which provides loans to recently married couples from poor families, in part to help cover housing costs. In partnership with the Ministry of Housing, the government has allocated $300 million for affordable loans in the 2006-2007 budget, which are to be provided to 30,000 poor families as means of enabling them to purchase homes. Furthermore, in partnership with the private sector, Ahmadinejad's government plans to build 50,000 housing units a year for the next five years, in order to ease housing shortages. Under this scheme, the government provides the land and a grant of up to $13,500 for the construction of each unit, with conditions attached regarding the sale of the unit. Meanwhile, Ahmadinejad's decision to reduce interest rates is aimed at forcing banks to stop relying on money lending as a source of income, thus forcing them to increase their presence in other economic activity such as the construction sector.

Despite such efforts, Iran's housing problems continue to intensify. Government assistance is a drop in a bucket compared to the magnitude of the problem. Prices continue to rise and an increasing population cannot afford the purchase of a home. Evidence for this phenomenon was demonstrated recently when two million applications were filed for 30,000 housing loans of $10,000 each, offered by the government. Many of the applicants were poor families living in major cities, especially Tehran. In addition to the enormous number of rejected loan applicants, the program failed to meet its objectives as even those who did receive the loans found it impossible to buy in Tehran. Some couldn't even buy in the other major cities. Their only alternative was to purchase in villages or small surrounding areas, where housing costs are lower.

Meanwhile, cement shortages continue, contributing further to the problem. For many years, private cement manufacturers preferred to export, due to higher income from foreign markets. The national shortage became so severe that in late 2005, the government suspended the export of Iranian cement to all countries other than Iraq (owing to political considerations). Such a measure is unlikely to remedy the situation, due to the inability of the cement sector to attract private investment; cement companies were among the worst performers in the Tehran Stock Exchange in 2005. Ultimately, as long as the government continues to subsidize cement, it will be impossible for private manufacturers to raise prices, thus making it uneconomical to increase production.

In conclusion, solutions to Iran's social and economical problems, such as those faced by the housing sector are crucial. The defeat of Ahmadinejad's allies in the December 15^th elections for the Assembly of Experts and municipal councils, might serve a warning sign for the president that the public is becoming impatient. Just as Ahmadinejad believes that "nuclear energy is an undeniable right of the Iranian people", he cannot overlook the fact that for the Iranian public, especially the poor, proper housing is also viewed as an undeniable right. Hence, unless urgent actions are taken, current domestic policies might have a lasting affect over the next Presidential elections of 2009■

* Meir Javedanfar is an Iran Analyst at meepas.com. Along with Yossi Melman, he is the co-author of the forthcoming book, "The Nuclear Sphinx of Tehran - Mahmoud Ahmadinejad and the State of Iran". 

 The Alliance Center for Iranian Studies (ACIS)

Tel Aviv University, Ramat-Aviv 61390, Tel Aviv P.O.B. 39040, Israel

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Iran Pulse 8 ● January 9, 2007 © All rights reserved.