Housing Market Caught in the Cycle of Inflation and Recession

The housing market is under pressure from inflation and rising construction costs. Declining household purchasing power is making homeownership harder, and the failure of support schemes has prolonged buyers' uncertainty.

According to the Mehr reporter, the housing market gradually entered a period of rising prices from the beginning of the 90s, and with the intensification of inflation and the continuation of the stagnation of transactions, in the last years of this decade and the beginning of the 1400s, it reached one of its most complicated periods of inflationary stagnation; A situation that, in the shadow of the growing gap between household income and living expenses, severely reduced the purchasing power of consumer applicants and made the path to owning a house difficult for a significant part of first-time homeowners and renters.

In the meantime, the continuous increase in housing prices and the lagging of household income from the purchase and rental costs gradually created a situation in which owning a house for many applicants turned from an attainable goal into a far-fetched dream. This trend has been intensified in recent years and some tenants, in addition to losing the possibility of buying housing, have also faced serious difficulties in meeting rent expenses; A situation that has forced some families to reverse migration and has led another group to live on the outskirts of big cities.

The promise of building 4 million housing units on paper

On the other hand, over the past years, governments have tried to pave the way for millions of households to become homeowners by implementing various housing schemes, including Mehr Housing and the National Housing Movement. However, the passage of years since the beginning of the implementation of these plans shows that the realization of the anticipated goals is still facing serious challenges. So that the case of Mehr housing in some new cities of the country has not yet been closed and the national housing movement, despite the promise of building four million residential units in four years from 1400, until September 1404, has only led to the completion of 41 thousand units; A statistic that, compared to the announced goal of building one million residential units annually, has a significant distance from the initial planning and has raised doubts about the extent to which the government's promises in the field of housing will be fulfilled.

106% increase in construction materials inflation in Tehran

In addition to the challenges related to housing supply and the slow implementation of support plans, the increase in construction costs has also become one of the factors that aggravate the problems of this market. According to the latest statistics of the Iranian Statistics Center, the inflation of construction materials in Tehran has reached 106% in the spring of this year, a figure that indicates the increasing pressure of production costs on the housing market.

The housing market is facing two basic challenges at the same time; On the one hand, the increase in production and construction costs increases the finished price of residential units, and on the other hand, reducing the purchasing power of households limits the possibility of converting these units into effective demand. The result of these two trends is the continuation of trading stagnation along with inflationary pressures

In such a situation, the gap between household income and the finished price of residential units has increased day by day; A gap that not only limited the possibility of buying a house for many tenants and first-time homeowners, but also made some of the applicants for housing support plans face disappointment and exhaustion in the middle of the road.

The continuation of the stagnation of transactions since March of last year, along with the increase in construction costs, the growth in the price of construction materials and the increase in the finished price of residential units, has put additional pressure on the housing market. This situation continues while the decrease in the financial power of consumer applicants has limited the possibility of effective absorption of the units offered in the market and has made the prospect of business prosperity uncertain.

Although part of the increase in construction costs has been attributed to the damage and targeting of some factories and production units related to the construction industry during the Third Imposed War, the developments in the housing market cannot be explained solely by the increase in construction costs. Examining the trends of the past years shows that a series of economic factors, including the decrease in the purchasing power of households, the increase in the attractiveness of housing as a capital asset, and the expansion of capital demand and speculative activities, have contributed to the formation of the current conditions of this market.

Changing the nature of housing; From consumer goods to capital assets

Over the past years, housing has gradually moved away from a mere consumer product to provide shelter and has become one of the most important capital assets in the household economy. The increase in the attractiveness of this sector as a tool to preserve the value of assets, along with the decrease in the purchasing power of households and the entry of capital demand and speculative activities, has created a situation in which the recession in the consumer sector of the market has deepened.

In other words, in the current situation, a significant part of the households that enter the market with the aim of providing shelter and becoming a house owner, are facing a serious gap between the income level and the housing price. This gap has reduced the power of consumer demand to influence transactions and has caused that even the increase in prices does not lead to a boom in buying and selling.

This situation is one of the most important features of the housing market in the period of inflationary stagnation; A market in which prices and production costs increase, but the purchasing power of households and the volume of transactions do not grow in proportion to this increase. As a result, neither the increase in prices alone creates the basis for market prosperity, nor does the decrease in the financial power of the applicants make it possible for the consumption demand to return to the effective level.

In such a situation, the housing market faces two basic challenges at the same time; On the one hand, the increase in production and construction costs increases the finished price of residential units, and on the other hand, reducing the purchasing power of households limits the possibility of converting these units into effective demand. The result of these two trends is the continuation of trading stagnation alongside inflationary pressures; A situation from which it will not be possible to get out simply by increasing the supply or implementing housing construction plans, and it also depends on removing production obstacles and strengthening the financial capacity of the applicants.

Over the past years, housing has gradually moved away from a mere consumer product to provide shelter and has become one of the most important capital assets in the household economy, and along with the crisis in the buying and selling and rental market, the significant increase in construction costs in recent months has become one of the most important challenges in the housing sector.

increase in construction costs; The double challenge of the national housing movement

Along with the crisis in the buying and selling and renting market, the significant increase in construction costs in recent months has become one of the most important challenges in the housing sector; An issue that in addition to private sector projects, the implementation of government support projects, including the National Housing Movement, has also faced serious problems.

The increase in the cost of construction materials and the growth of the finished price of construction, in a situation where many applicants are facing limited financial resources, can make the process of advancing residential projects more difficult. This issue is more important in support plans; Because the realization of the goals of these plans, in addition to the provision of land and the start of executive operations, depends on the coordination of the responsible institutions, stable financing and the possibility of completing the units within the framework of the announced plans.

The Ministry of Roads and Urban Development has not been very successful in implementing the national movement

In this context, Seyed Jamal Mousavi, a member of the Chairmanship of the Parliament's Construction Commission, criticized the implementation process of the National Housing Movement's projects and said: "Until today, there is not much success in the implementation of national housing projects by the Ministry of Roads and Urban Development, and there is a need for a general review of these policies so that the housing development process accelerates."

Expressing his regret about the inconsistencies of the executive bodies, he reminded: unfortunately, currently the Ministry of Roads and Urban Development and the Ministry of Economic Affairs and Finance are blaming each other for the halt in the construction process; While the result of this procedure is the lack of success in the implementation of the "Housing Production Leap" law and the uncertainty of a large part of the applicants.