Deficit of 4 million housing units in Iran and the impact of its compensation on the housing market

Mr. Makhloughi, the CEO and a member of the board of directors of Metra Company and also a member of the Association of Consulting Engineers, said in a press conference on Sunday, October 9, on the subject of examining the dimensions of the housing production leap law: “Although supportive housing schemes have been implemented over the past fourteen years, the housing market has not yet reached equilibrium.”

Referring to the 13th government’s motto of building one million housing units a year, he said: “One of the promises made by the president during the elections was to build one million housing units a year.”

Referring to the situation of housing construction during the last eight years, Mr.Makhloughi stated:” In 1992, the rate of housing construction was about 800,000 housing units per year, which decreased to 300,000 units by June of this year, and the present government must make up for this backwardness”

He also emphasized that we are facing a deficit of four million housing units in the housing market, and then he continued: The present government must change its approach in this field in order to meet the deficit. In additions, to build one million housing units, they should create coordination between all related organizations by forming a working group.

The CEO of Metra Company emphasized that the most significant issue in the construction of four million housing units is the issue of financing and land supply. But now one of the problems is identifying government-owned lands.

He added: ‘We should note that one of the most critical problems of Mehr housing construction has been the  lands without infrastructure, which after 12 years, some Mehr housing units still do not have the required power supplies.’

The member of the Association of Consulting Engineers also talked about the importance of financing: ‘Since the price of housing has increased 10 times more over the past few years, the amount of facilities should be increased to the same extent, but in this area we also see delays, however, according to the law on banking facilities in the building fields, which is currently less than 5 percent, has increased to 20 percent.

‘I believe that by adjusting some of the conditions for registration in supportive housing, we can use the potential brought by the applicants,’ said the Mr.Makhloughi. At present, people who have a history of using government facilities in the housing sector can no longer apply for supportive housing, which I believe should be removed.

Referring to the jump in the price of municipal tolls for the construction of each square meter of housing, he said: ‘Another part of the problems in the field of construction that increases the cost is the issue of tolls, which currently in some areas of Tehran tolls up to eight million tomans -which has reached to 60% increase compared to the toll rate in 2020.

He emphasized that materials should be available for this project and its supply is the responsibility of all related sectors in the country; then he continued: The main materials required in the construction sector include steel and cement, which are fully supplied and they play a key role in achieving the goals of this project. The annual production capacity of the country’s steel is 30 million tons, which is between 15 to 16 million tons annually for domestic consumption and 13 to 14 million tons for export. The main exports of the country in the steel sector are related to ingots, rebar and beams.

He added: ‘Raw materials, intermediate products (ingots) and final products such as rebar and whatever is required domestically to implement the project, exist at the macro level in the country and even in the production of rebar (with an annual production capacity of 7 million tons) there is  excess capacity.’. For instance, if the gross average area of ​​a residential unit with a concrete structure (for the whole project) is considered to be 100 square meters, and considering the consumption of 50 kg of rebar and steel per square meter of a residential unit, five million tons of steel will be required. Demand can be easily met using internal capacities.

‘In addition, in the past few years, a very effective capacity building has been done in the cement industry, and now there is a production capacity of 88 million tons in this area, despite the harsh conditions of sanctions, the lack of spare parts for production lines,’ he said. And some units and other problems, now 70% of the capacity of this industry is active. Accordingly, for the above mentioned example, considering the average consumption of 200 kg of cement per square meter, the need for cement for such a project is about 20 million tons per year, which is completely under the capacity of the country. The close government supervision in this area leads to allocation of this huge capacity to the national housing plan.

The member of the Association of Consulting Engineers, in response to a question about the possibility of inflation of one million housing units per year, said: ‘The most important issue in the construction industry is that with the activation of this industry, its affiliated industries will be activated.’ Housing creates jobs for 1.9 people. Thus, building one million housing units means creating job opportunities for 1.9 million people.

Mr. Makhloughi emphasized: ‌“Inflation by housing construction is due to the creation of money by the Central Bank or borrowing from the Central Bank to provide facilities in this area that if we go in this direction, we will still see an increase in inflation; however, the government can increase the selling ​​oil or tax revenues from vacant houses or from revenues from the sale of building meters through the capital market, in which case the inflation rate will also be controlled.

He added that the price increase due to the mismatch between supply and demand has put unprecedented pressure on real housing applicants. These pressures are such that many people are no longer able to enter the housing market. For example, in the city of Tehran, a middle-income family must save about 30 years of their income without considering inflation in the coming years in order to be able to buy housing.