By M.A. Saki

Serious questions on how renting prices would be tamed

June 22, 2022 - 18:10

TEHRAN - The president, Parliament speaker and Judiciary chief on Sunday backed a government plan which set limits for increase in rental prices. It set a 25 percent increase in the capital Tehran and 20 percent in other cities.

The parliament (Majlis) also approved the general outlines of the plan on Wednesday and specialized parliamentary committees are going to study the pros and cons of the plan.

However, there is a serious doubt about how this plan, once finalized, is going to be implemented. Experience shows the people have serious doubts about such plans.

In the Rouhani administration it was announced that landlords are allowed to increase rental prices by only 15-25 percent. However, the order failed badly. Only a very small percentage of houseowners increased the price by that amount. They just acted based on their own conscience.

The plan failed just because there was no organization or institution to enforce or monitor it. Now, there is a great fear that the new plan may also find the same fate.

Rental prices have started going up dramatically from three years ago. However, increase in the current Iranian calendar year 1401 (which began on March 21, 2022) are more shocking than the years 1400 and 1400. Some landlords have incredibly increased prices by 100 percent. For example, in the early autumn of last year, a tenant could rent a 65-70-meter apartment in the Afsarieh region in southeast Tehran by a monthly payment of 3 million tomans (nearly 100 dollars) plus a 100 million tomans in deposit money (about 3,500 dollars). However, such an apartment is now being marketed or rented twice that amount.   

Such sharp increases have caused anxiety and depression among the tenants, especially families with low income. Some families have been forced to leave cities, especially big ones, and rent a house in outskirts.

Now the key question is which inspection body will monitor the so-called the 20-25 percent increase in rent price, which has been put on the agenda of the government and Majlis?

Surely, the Majlis will ratify the details of the plan, but if its implementation is not effectively enforced by an inspection body it will prove a big failure and will intensify the public distrust of the responsible bodies.

In studying the plan, it is also necessary that the Majlis close all possible loopholes that may emerge in the implementation process.

Final days of spring up until the end of summer is known as the “season of movement”. Most landlords are fishing in the troubled waters. They propose prices which are much higher than the inflation rate. Also, most real estate agents fan the flames of higher rent prices because they get their own commission. For them, the higher the better.

Up until this moment, there has been no formula or criterion for setting rental prices. It is landlords who decide about prices. This is while that according to certain reports and remarks by some officials about 70 percent of tenants’ income goes up for renting.

It is true that supply and demand is very important in rental market, like any other market, but in such a situation in which the inflation rate is too high it is necessary that the government intervene in the rental market. Just asking landlords not to increase rents more than 20 to 25 percent will not work at all.

Being aware of the heavy burden on tenants and skyrocketing home prices, the Raisi administration has promised to build four million houses in four years of his presidency. Whether this goal will be realized or not, or is too ambitious, is a question that experts must answer. However, the performance of his administration in 10 months of his presidency is not promising. So far, the government is far behind its plan called National Housing Movement.

During these ten months, the Ministry of Transport and Urban Development has not even finished the remaining Mehr housing units, which some figures have put their numbers at 80,000. Reportedly, these housing units, which started more than a decade ago, are being abandoned and the customers are repeatedly being given unfulfilled promises. They are being said that they will be finished this year, another six months, three months later, and so forth. These unfinished houses are mostly in new cities in the provinces of Tehran and Alborz, which together house about 20 percent of the Iranian population.

Obviously, incompetence, corruption, repeated increases in prices of construction materials, and illegal sanctions are the main culprits for delays in finishing the remaining units, which are mostly of low quality.

Maybe one of the reasons for such repeated delays is that the current administration is mostly focusing on its own housing plan.

According to statistics given by a former official at the Ministry of Transport and Development in the early summer of 1400, about 8.5 families were tenants. MP Alborz Hosseini, who sits on the Parliament Development Committee, also said on Wednesday that 32 million out of 85 million Iranian population are tenants.

Naturally, the number of tenants is increasing as families cannot afford to buy a house.

However, both the Rouhani and Raisi administrations as well as the sitting and previous parliaments have been either ignorant or reluctant to make use of the experience of other countries in taming the wild housing and renting markets. There is a mechanism in economics called “taxation”. The executive officials and parliamentarians could have levied heavy taxes on the sale of houses in the form of value-added tax (VAT)to bring prices down. Or the parliament could and still can approve a legislation that would limit the number of houses that a person or family can have in his possession.

Moreover, some experts believe that the ratio between the population and houses is not that much that is causing so much anxiety for the tenants. They say the main reason is that certain people own tens or probably hundreds of houses, especially in the capital Tehran. Additionally, MP Ali Khezrian, talking in the parliament on Wednesday, announced that 3 million apartments are now empty and the owners refuse to sell them. Some have put this figure higher and claim there are four million such houses.

These people, who do not need professionalism or expertise, act like a mafia and hold the key for house prices.

Traditionally and truly there have been and still there is a view among the people that investing in real estate is the best and safest option. House is subject to a meager taxation and it is widely considered as a capital asset rather than a consumer good and this has been proven in the country.

To tame this wild horse and reduce the concerns of tenants and control house prices, probably the first urgent move is to ban the possession of more than two or three houses by a person for family. If officials’ interest really doesn’t lie in keeping more houses in the possession of a small percentage of landlords, they can adopt effective measures by using the experiences of successful countries in this regard.

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