Bad Housing on the Rise

EghtesadOnline: The government’s active involvement with rental market is inevitable, as a significant proportion of tenants are financially vulnerable people. Rental housing should be viewed as an effective way to provide housing for low-income households, says Ghazal Raheb, a housing and urban development researcher, in an article for the Persian economic daily Donya-e-Eqtesad.

News ID: ۷۸۷۷۷۱

14 March 2022

A translation of the text follows:

The rate of renting households has been on the rise in recent years. In the years following the 1979 Islamic Revolution, that rate decreased from 15% in 1976-77 to 12%, thanks to the widespread supply of land. But later it saw an uptrend, so much so that according to the Statistical Center of Iran, it reached 23% in 2006-7, 27% in 2011-12 and 32% in 2019-20.

In recent years, the average renting household rate has exceeded 40% in Iranian cities and over 50% in Tehran.

The rising rate of renting households suggests that housing supply is in poor condition. The long-term double-digit inflation rate has turned properties into a capital preservation haven.

Renters, however, cannot avail themselves of this opportunity. They are always worried about the increase in housing expenses. Short-term leases, scarcity of furnished rentals, the feeling of insecurity, lack of bonds with neighborhood and furniture damage in transportation give them other causes for concern.

The social status of landlord vis-à-vis tenant and difference in their legal rights are important as well. Therefore, Iranian households have always preferred to live in homes owned by them. But economic conditions of the country, the high rate of bad housing and the rise in the number of households who can’t afford to buy a home even with government support have given rise to a housing crisis.

Living in rented homes is both a kind of lifestyle for rich people and a solution to the housing problem facing low-income people. Experience shows that even if government lends its support to the poor and provides them with housing, many of these people will sell their properties to meet their day-to-day needs in the absence of employment and rejoin the ranks of those in need of housing.

Supporting the demand side of rental housing is a popular policy in many countries. Properties that are being granted to tenants are not necessarily homes constructed as part of mass construction projects. In many cases, they are homes scattered throughout the city to prevent centralism in the housing of the poor.

Governments have always lagged behind in terms of budget allocation to rental housing despite the provisions of development plans. Rental housing has not been prioritized even in projects such as Mehr Housing Plan, the National Housing Initiative and Surge in Housing Production.

Legal and institutional policies on the engagement of private sector in the professional rental system have not been adopted; measures such as the sale of corporate houses or rent-to-own homes were against the development of the rental system.

The government’s strategy to support tenants in recent years has been to control rent ceilings with mandatory rates, or increase the leasing period. This approach has been tested in several countries and proved unsuccessful. The application of such tools in Iran has reduced the supply of homes by owners and consequently increased rent levels. Add to this the fact that the number of home deals has increased sixfold compared with the threefold growth in rent deals in recent years. All in all, landlords are reluctant to offer their property to the rental market.

The government’s entry into rental market is inevitable, as a significant proportion of tenants are financially vulnerable people. Rental housing should be viewed as an effective way to provide housing for low-income households.

Recommendations

The use of subsidized rental housing can continue until people are empowered to buy homes by taking out home loans.

Institutionalization, provision of legal infrastructures and planning are needed to achieve this goal. However, it may impose the inevitable maintenance cost on governments; after all, it is the responsibility of the government to provide housing for the underprivileged.

The diversity of access to different types of rental housing is a necessity. Past social interactions created a pattern of rental housing that, in addition to providing affordable housing for some people, it also provided livelihood assistance for the landlord. Inflexible control systems have eliminated many of these opportunities that could be helpful for low-income groups.

Renovation plans in dysfunctional neighborhoods should be pursued with respect to the rights of all residents, including tenants. Renovation and development plans and the improvement of infrastructures often increase the economic value of the property, which is in favor of homeowners but to the disadvantage of tenants.

Governance, especially a system of governance by municipalities based on determining local needs in line with the capacities of the private sector and real-estate developers can balance supply in different parts of the city. It certainly is more effective than rent control policies.

What is important is to pay attention to rental housing, as under current conditions, home ownership is not possible for all members of the public.