Does Tehran Set the Price of Homes by the Sea?

In northern cities, home buyers are not always permanent residents of that city. Outside purchasing power can change the housing price equation.

Housing and urban planning: In the northern coastal cities, a house can mean completely different things to two buyers. For a family that lives and works in the same city, the house is the place of residence; A purchase that should be financed with income and savings for several years. For another buyer coming from Tehran or a larger city, the same house may be a vacation home or a way to hold capital. Both trade in the same market, but they do not necessarily enter it from the same source of income and with the same purchasing power.

This disparity raises a question that is rarely addressed in the usual debate about housing affordability: If more homes are built in northern cities, will local residents become homeowners more easily, or will some of the new units respond to demand that has flowed in from outside the city?

Villa market and external purchasing power

Field investigations show that the average price of the investigated villas in Mazandaran was more than 12 billion tomans and in Gilan was about 8 billion tomans. These average figures are not official transactions of all houses in the two provinces, but they provide an image of the price level in a part of the villa market.

To explain these prices, it is not possible to look only at the income of households living in the north. The second home market, unlike the consumer housing market, depends on applicants who may work in another city, earn an income, and turn their savings into property.

In such a market, the purchasing power of the local household does not necessarily determine the price ceiling. A non-native buyer may compare the value of a villa with the price of his assets in Tehran, the expected return on investment or the cost of owning a private residence.

Construction boom, without increasing welfare?

One of the remarkable evidences about the consequences of second houses is obtained from a research about the three cities of Noor, Chalus and Babolsar. This study, which was published in the spring of 1402 in the "Nameh Memari wa Shahr Sazi" magazine, was conducted based on the questionnaire of 381 local residents.

The results of the research show that the expansion of second homes had a positive effect on the economic growth index, but its effect on the economic welfare index was negative.

These two results are not necessarily contradictory. Building second homes can generate income for builders, dealers, real estate agents, and some local businesses. On the other hand, increased demand for land and housing may raise the cost of local households entering the property market.

Another research about Lisar village in Talesh has also pointed to real estate speculation, increase in land and housing prices, and land use changes, in addition to the benefits of tourism for second homes.

These findings highlight an issue that Fardin Yazdani, a housing economics researcher, has also discussed in his discussions about the distribution of the benefits of the growth of the building sector: the growth of investment in housing does not necessarily mean improving access to housing for all income groups. The important question is how the benefits of construction boom are distributed among land owners, builders, buyers and households without housing.

Why building more houses does not necessarily lower the price?

In the housing economy, an increase in supply, other things being constant, usually puts downward pressure on prices. But in tourist cities, the construction of new houses may be accompanied by the arrival of new buyers; A demand that does not necessarily originate from the income and residential needs of the city's current population.

Suppose a hundred new units are built in a coastal city. If the majority of these units are purchased by out-of-town households, the increase in housing stock will not necessarily mean a similar increase in available homes for local residents.

Fardin Yazdani, in criticizing policies based on increasing building density, explains that increasing construction capacity does not automatically guarantee a decrease in housing prices. From his point of view, general inflation, liquidity and land price also play an important role in determining the price of housing, and the increase in density can lead to the growth of land value and construction score.

This argument is also worthy of consideration for the northern market. Even if municipalities allow more units to be built, the bottom line depends on how much construction actually takes place, at what price homes are offered, and what groups can afford them.

However, it cannot be concluded that the new supply was ineffective from the fact that the price remained constant or increased after construction. It is possible that without the construction of those houses, the prices would have increased more. Recognizing this difference requires simultaneous examination of supply, demand and price in several years and several cities.

On the other hand, not all houses in the north are located in the same market. A vacation villa in a coastal area may have different buyers than a typical apartment in the center of the same city; Therefore, the result of the villa market cannot be directly generalized to the entire urban housing.

A demand that is not only for holidays

The external demand for northern housing is no longer necessarily limited to buying a second home and weekend trips. Part of this demand can be formed from households that seek to change their permanent residence.

During the past months, some housing economics experts point to the relative increase in demand for housing in the northern regions after the 12-day war and consider security concerns, the water crisis and the climatic conditions of some big cities as possible factors for this relocation.

This is an important difference from the traditional market of second homes. A villa buyer may only be in the city for a few weeks out of the year, but a household migrating for permanent residence needs municipal services, schools, medical care and infrastructure in addition to housing.

In both cases, the arrival of demand from outside can change the composition of the housing market. With the difference that permanent migration also increases the city's population and its effects will go beyond real estate transactions.

Who are the houses being built for?

In housing policy, the number of built units is one of the most important indicators. But for cities that are facing second home demand and migration from other regions, this indicator alone is not enough.

It is necessary to know in which areas the new houses are built, who buys them, how long they are used and how their price is related to the income of local households.

In northern cities, the problem may not only be a lack of housing; The difference in the purchasing power of those who enter the market for permanent residence and those who enter the market for recreation or investment.

Until the source of buyers and the true effect of construction on prices are clarified, it cannot be said that increasing supply is a complete solution to the problem or will be ineffective. But a more precise question can be asked: Whose housing needs will the houses built in the north ultimately meet?