Iran’s Housing Crisis aggravated by Reluctant Sellers

Critics of President Hassan Rouhani’s administration blame the government’s monetary policy for the housing recession, especially the policy’s emphasis on bond markets. Critics argue that construction can create jobs and thus help solve the unemployment crisis.

It is true that the Rouhani administration has expanded the role of the bond market as a method to finance public debt. Moreover, its disciplined monetary policy has played an important role in reducing the inflation rate to single digits. Yet rather than interpreting this policy as a failure, prominent economists such as Saeed Laylaz believe it to be an achievement.

In a March 2017 interview with Tejarat-e Farda weekly, Laylaz said the Iranian economy had undergone a structural shift, with the housing sector no longer dominating the economy. For economists like Laylaz, a lifelong advocate of the manufacturing sector, this brings hope of increased investment in manufacturing.

The Rouhani administration has increased the number of home loans issued in an attempt to boost demand for home ownership. However, the change in the nature of the Iranian financial markets and the country’s housing sector means that Iranians have other options. Demand for home ownership has become less sensitive to government policies and more in tune with Iran’s economic realities.

Today, many Iranians find it more profitable to buy government bonds or to invest in the currency market rather than lock their money in real estate. In this vein, corruption and murky property ownership laws also mean that the average Iranian faces increased risk and vulnerability when investing in property. Meanwhile, neither the Rouhani administration nor local authorities have proposed measures to increase taxes on empty homes.

Thus, the reality may be that the core issue plaguing the Iranian housing market is not decreased demand but reduced supply — especially given the climate in which property owners refuse to sell at a loss. With continuing uncertainty in nonoil sectors, measures to address the housing supply problem — such as further taxes on empty houses and penalizing speculators and investors — have a high chance of backfiring.

Therefore, it is prudent to assume that the housing recession will continue through 2017.

No comments yet.

Leave a Reply