Vacancy Tax Not Effective in Short Run: Housing Expert

EghtesadOnline: A prominent housing expert says vacancy tax would hardly push down rents or home prices in the short run.

News ID: ۷۵۰۵۴۱

27 July 2020

Fardin Yazdani, the planner of Comprehensive Housing Initiative of the Ministry of Roads and Urban Development, added that from the get-go, he approved of taxing empty homes in principle.

He, however, noted that “it can’t be a powerful tool to curtail home prices and rent levels in the short term, given the fact that most of the empty residential properties are located in the luxurious, expensive northern districts of the capital city”.

“These under-used housing units have been built as means of investment as opposed to a place of living," he said. “Therefore, they will have little effect in bringing the housing market back to equilibrium. The same is true about the tenancy market. Demand for such homes is low among renters,” he was quoted as saying by Hibna.

He added that it is important to set tax rates with an acceptable deterrence level so as to spur property owners to use vacant homes either by renting them out or selling the properties off to someone who actually plans to use it.

“In the long run, vacancy tax would lead to a shift in investment preferences in the housing sector. Investors will put their money into mainstream housing units rather than high-end homes with their high-maintenance costs,” he said.

Yazdani stressed that policymakers also need to work out an appropriate mechanism of calculating and applying vacancy tax, if they wish to achieve meaningful results.

A motion to consider the adoption of a vacancy tax was originally passed in the Iranian year ending March 2016. The Ministry of Roads and Urban Development was then tasked with designing, in cooperation with a number of other affiliated organizations and entities inside and outside of the administration, a database containing information on all residential units and homeowners across the country, which would be handed over to the tax administration.

The ministry did not provide an exact date on which the database could be used because “it must be strengthened and completed step by step so that its result can become more accurate”, Ali Chegini, former deputy minister, said then.

Two months ago, Minister of Roads and Urban Development Mohammad Eslami said the nationwide online database of all residential properties across the country had been completed and submitted to the Iranian National Tax Administration; the tax authority would issue tax statements as of the beginning of summer (June 21).

However, latest developments indicate that vacancy tax won’t be implemented sooner than Aug. 22. Homes with floor areas below 150 meters will be exempt from empty home tax, though small-sized residential properties account for a big portion of vacant homes.

“Empty homes will not be taxed in the first year but they will be subject to tax at the rate of 50% of the property’s assessed rent in the second year and in the third year, they will be levied tax at the rate of 100% of the property’s assessed rent. A commission comprising officials with the Roads and Urban Development Ministry, INTA and Municipalities Organization will estimate the rent of the properties,” INTA chief Omid Ali Parsa said.

30% of Urban Households Live in Rented Homes

According to Mahmoudzadeh, a total of 6.6 million households or 30.7% of the country’s 18.1 million urban households in the country live in rented homes.

“In seven Iranian provinces, including Tehran, Kohgilouyeh-Boyerahmad, Lorestan, Qom and Kermanshah, renters account for more than 40% of the households. In other provinces, fewer than 30% of households live in rented homes. The lowest tenancy rate in the country has been registered for Ardabil, Yazd, Mazandaran and Golestan, and in other provinces, the tenancy rate hovers between 30% and 40%,” he was quoted as saying by Fars News Agency.

Noting that the objective of the empty homes tax is to return empty properties or second homes [under-used properties] for use as rental homes, the official said, “The latest SCI figures show more than 2.1 million homes in urban areas are empty and there are about two million second homes. Homeowners who put their empty houses on the market by September 21 will be entitled to exemption from vacancy tax.”

Mahmoudzadeh noted that according to the findings of the Housing Comprehensive Plan (March 2017-27), close to 30% of renters need government financial support.

This is while credit facilities extended to the housing sector account for only 3% of total financing facilities currently compared with 8% in the year ending March 2020 and 17% in the year ending March 2012, he said.

“The ministry has put together a bylaw on a professional rental system that is about to be approved by the Cabinet. It has also reached agreements with national humanitarian aid organizations, including the Imam Khomeini Relief Committee and State Welfare Organization to provide dwellings for longtime renters. Given the economic hardship facing tenants, the government has set up a taskforce to weigh in on the proposals made by the ministry,” he said.

Demographic Projections

According to the Housing Comprehensive Plan (March 2017-27), the Iranian population will reach 88.2 million in the year ending March 2027. Projections show 68.2 million would be living in urban areas and 20 million in rural areas by 2017. The number of households will hit 28.7 million, of whom 22.1 million will be in cities and 6.15 million in villages.

Newly-formed families will need 4,076,000 homes over 10 years to March 2027 (including 3,997,000 urban households and 79,000 rural households). The country will be short of 1,370,000 homes (including 673,000 units in cities and 697,000 in villages).

A total of 5,313,000 homes, including 3,003,000 in the cities and 2,310,000 in villages, have to be repaired or rebuilt by then.

From the Iranian year ending March 2007 to the year ending March 2017, close to 590,000 residential units were produced and supplied. The highest and lowest number of homes constructed over these years were registered for the year ending March 2013 with 820,000 and the year ending March 2017 with 390,000, respectively.

About 2.5 million homes in the country are empty. The optimal ratio of vacant house overseas is considered to be 5% in urban areas and 2.5% in rural areas, whereas it is 10.3% in Iran’s urban areas and 8.5% in rural areas.

The Housing Comprehensive Plan says the number of vacant homes must decline to 1.4 million (1.1 million in urban areas and 300,000 in rural areas.)