Fiscal 2020-21 Increase in Rental Housing Expenses Unprecedented

EghtesadOnline: The share of housing in the Iranian households’ spending budget has reached an unprecedented high.

News ID: ۷۸۷۴۲۲

14 December 2021

According to official statistics, households living in urban areas spent an average of 43% of their monthly expenses on rent in the Iranian year ending March 2021.

Tenants spent 28% of their living expenses on paying rents in the mid-2000s, one of the relatively calm periods in the rental market, given the 30% conventional share of housing costs in household expenditure.

At present, however, rental costs drill the biggest hole in households’ budget, thanks to a 42% jump in rents last year (March 2020-21), which has been driven by high inflation registered over the past three years and an increase in real-estate prices.

In Tehran, rents account for more than 60% of household expenses; statistics show that the share of housing in households’ budget has reached 1.3 times the standard level, Persian economic daily Donya-e-Eqtesad reported.

Rental housing costs in urban areas in household budget increased to an unprecedented 43% in the year ending March 2021.

According to latest data released by the Statistical Center of Iran, the share of urban rental housing expenses in households’ budget stood at 28% in the year ending March 2006, 33% in the year ending March 2012, 34% in the year ending March 2017 and 33% in the year ending March 2018.

Compared to the early years of the 2010s and the mid-2000s, rents mark a 1.3-fold and 1.5-fold increase respectively in the early years of the 2020s.

The ratio of net rental housing expenses to total household expenditures increased to 35.52% in the year ending March 2019, 39.82% in the year ending March 2020 and 43% in the year ending March 2021.

Rental Housing in Tehran

According to SCI, Tehran’s average costs of rents in the first quarter of the current year (started March 21) increased by 51% compared with the same period of last year to reach 840,000 rials ($2.5) per square meter. This comes as the increase in rents of the country’s urban areas was 50% since the beginning of the current year up until now. These figures are indicative of high inflation in the rental markets of Tehran and other cities. Rent expenses have become the top spender of households’ budget.

Why do rents constitute the biggest share of household budget? Three reasons can be put forward as follows:

The first one is that household expenses have outgrown their income. In recent years, the general inflation rate has exceeded the growth in household income, indicating that the real income of families has decreased. Studies by Donya-e-Eqtesad show that the general inflation stood at 37% in the last Iranian year (March 2020-21). In the fiscal 2019-20, it was 34% while first, household income did not increase accordingly and second, essential costs such as food and housing expenses increased much more than the general inflation.

The indirect pressure of the surge in real-estate prices on rents is the second reason behind the rising share of rent in the household budget. Since a part of the growth in rents depends on the growth in real-estate prices, the rise in real-estate prices in cities, which started in 2018-19 affected the rental market and led to a significant rise in rents.

The country’s near zero economic growth of the 2010s is the third cause of the decline in Iranian households’ welfare and consumption.

Consequences of Rent Increase

The rise in rent’s share in the household budget will have at least three negative effects on the lives of urban families.

First, it will decrease the quality of life of households in cities due to the rise in the share of housing costs. The quality of life of families has been reduced in various ways; a large number of households have been prevented from owning a home as a result of rising rents; many others have been forced to live in smaller, older homes located in less favorable neighborhoods.

The second negative effect is the decline in calorie intake of households following the rise in the share of housing costs in the household budget. The real expenditure by urban households dropped by 20% in the late 2010s compared to the beginning of the decade. In general, households have been forced to reduce the share of calorie intake, recreation, health and culture due to the rise in the share of rents in the household budget.

In the past decade, the average consumption of meat by urban households plummeted by 50% and the intake of dairy products dropped by 35%, thanks to the rise in the prices of these products as well as the increase in the share of housing expenses in the household budget.

The significant decrease in the level of household welfare is the third negative impact of rising rent. Rental housing inflation in the country averaged 42% last year. The current year saw rental housing inflation stand at an average of 50%, indicating that households are living through a worse period of financial difficulty in terms of rental housing compared with last year and all previous years.

The findings by Donya-- Eqtesad show that the capital city’s tenancy market was also affected by another negative factor: the government’s plan to offer security deposit loans turned into a pretext for landlords to increase rents as much as the value of the loan. This is while only government employees are eligible for security deposit loans due to strict bank requirements.

Banks only ask for government guarantors to pay security deposit loans, but the landlords assume that all tenants have taken out such loans and therefore rent levels must increase at least as much as the value of the loans.