Since the mullahs came to power in Iran, the topic of housing has remained a contentious issue. Home ownership is becoming increasingly difficult with each passing day. Unfortunately, for the younger generation, owning a home has become all but a dream due to the regime’s failed policies.

The Iranian people’s inability to afford residential units built in the country has left housing developers disheartened, according to Ali Farnam, a specialist at the Majlis (parliament) Research Center. “Consumer demand is currently almost non-existent in the market,” he told the semi-official Tasnim News Agency in an April 16 interview.

The average housing price per square meter in Tehran has skyrocketed over the past five years, Farnam explained. In 2018 the average price per square meter was 60 million rials. Today, it exceeds 600 million rials, marking a ten-fold increase.

According to Farnam there has been no increase in housing production between 2018 and 2023. Moreover, the risks of construction materials becoming more expensive and wages increasing have escalated. Additionally, prices increasing in other competing markets, such as Iran’s gold and coins market, are overshadowing the profitability of the house construction industry.

Housing development in Iran has been terminated despite the pledge of regime President Ebrahim Raisi to build one million residential units each year at the outset of his tenure. This commitment was deemed “unrealistic” from day one by both housing market specialists and Majlis members from the beginning.

Only 300,000 units are being constructed across the country each year, which is a third of the volume produced before 2013, Farshid Pourhajat, Secretary of the National Association of Mass Builders, said back in March. The price of construction materials doubled last year (the Persian year begins on March 21), while the construction and sale of housing have come to a halt since December due to the skyrocketing price of the U.S. dollar rate in Iran, Pourhajat explained.

The state-run Donya-e-Eqtesad newspaper published a report on April 8 discussing the significant surge in housing prices and the cost of rent in Tehran over the past three months. The report highlighted that housing prices have risen by a minimum of 40 percent when compared to prices just three months ago.

“The government no longer has adequate social capital and has lost the ability to monitor the chaotic housing market,” the state Jam-e Jam newspaper wrote during the same period.

Mojtaba Yousefi, a member of the Majlis Civil Commission said that on average 51 percent of the country’s population are tenants.

On April 9, referring to the rising housing prices and rents, Yousefi told the semi-official ILNA news agency that the economy, especially the branch related to the minimum expenditure basket, cannot be controlled through directives and orders.

He is referring to the guidelines set to determine the ceiling of rent price growth in the range of 20 to 25 percent, announced by Raisi’s government last year.

Yousefi went on to explain that they were witness to the fact that this ordered price limit was not implemented. When inflation increases, the price of construction materials increase, resulting in the rise in housing costs. It is impossible to control the market through such a method, he added.

According to the data of the Statistics Center, in 2011 housing consists of 34 percent of an average household budget, rising to 39 percent in 2017. This figure reached 47 percent in 2020.

The data related to the Organization for Economic Co-operation and Development (OECD) shows that in the period of six years and nine months from 2015 to the fall of 2022, the price of each square meter of residential units in Saudi Arabia decreased by 12 percent.

At the same time, the price of each square meter of a residential unit in Tehran has experienced a 963-percent growth.

One should take into account that the housing market is affected by the ownership of millions of vacant houses held by various entities associated with the regime, such as the Housing Foundation, the Mehr Housing Foundation, the Mostazafan Foundation, IRGC banks, and state-owned banks. These entities benefit from rising housing costs and rental rates, imposing a further financial burden on the Iranian people.

Despite the fact that a significant number of people are becoming homeless or living in extremely poor conditions, the ruling regime has failed to provide any viable solutions.

The ongoing situation of Iran’s unstable economy, inflation, and the ruling regime’s political isolation hand in hand skyrocketed the price of the U.S. dollar to more than 600,000 rials in the past few weeks. Despite the hollow promises of regime President Ebrahim Raisi and the Central Bank, it was not possible to immediately control the increase in the price of the dollar, and the government once again realized that economic necessities cannot be changed through orders and promises.

Following the announcement of a recent political agreement between Iran and Saudi Arabia, and the possibility of normalization in relations between Riyadh and Tehran, Iran’s currency market responded with reductions in the price of the U.S. dollar. Although this political development was accompanied by the hope that Tehran is attempting to end its political isolation, financial experts believe this cannot deliver a final solution to the currency woes in Iran.

In the two weeks, the market was facing an increase in a new surge in the price of the U.S. dollar, reaching 550,000 thousand rials on March 30 and 31, and the euro was trading at 600,000 rials.

In a survey conducted at the end of the Persian year, the state-run Donyay-e-Eghtesad daily sought to forecast economic developments expected in 2023. In this survey, market experts expressed their opinions about effective components for economic conditions.

The market is losing trust in the rial

“The most important engine behind the stock market next year will be changes in the dollar exchange rate. Experts believe that next year is the rial’s depreciation will be between 30 to 60 percent. Stock market experts believe the most important factor behind Iran’s stock market’s lagging behind other markets is the lack of confidence among investors,” the survey reads.

From the first day of his administration, Raisi attempted to encourage domestic investors to purchase stocks and boost the country’s market in the absence of foreign investment. However, his claims of incorrect statistics and optimistic economic forecasts failed to fundamentally revitalize Iran’s stock market.

The fact that domestic investors in Iran, and the general public, constantly monitor the dollar exchange rate and adjust not only their transactions but also inflation and general economic conditions with the price of the dollar, are well reflected in this recent survey.

“According to capital market experts, 46 percent of respondents consider the currency exchange rate as the main factor in stock market fluctuations. Twenty-seven percent of the observers said they believe stability in macroeconomic policies, which can be another element behind the rise and fall of share prices of stock market companies,” Donyay-e-Eghtesad writes.

“The return of investors’ trust” also accounts for the remaining 27 percent, which is basically a function of the economic status quo and cannot be realized through the promises of politicians.

It is no secret to economists that the currency exchange rate fluctuations in Iran, and its ups and downs, are mostly caused by the country’s prevailing economic and political circumstances. Corruption and ineffectiveness among regime officials are the main reason behind the current situation.

Popular uprisings in Iran have made it clear that the ruling regime has no legitimacy. Foreign investment, which could boost Iran’s stock market, has been neglected in the survey, the reason being that foreign investment in Iran can face heavy and harmful consequences due to widespread protests.

Continued currency fluctuations

The dollar exchange rate, whether in an upward or downward trend, eventually has to correct its course and stand at a reasonable figure, said Hamidreza Kahedi, a financial affairs expert, in an interview with the regime’s semi-official ILNA news agency. “In the current circumstances, political breakthroughs are very important because they open the way for the currency to flow into the country.  The agreement with Saudi Arabia, which leads to relations development with other Arab countries, has a positive impact, while we cannot expect a strange jump in the currency market in our status quo. However, money printing continues and with the resulting inflation, the dollar exchange rate soaring above the 600,000 rial mark will not be considered strange,” Kahedi added.

According to this expert, with the continuation of high inflation in Iran and during a possible dip, the dollar has the capacity to exceed the 600,000 rial mark. Some experts even predict an “astronomical figure of one million rials” for every dollar by the end of the Persian year (March 2024).

Determining the real price of the dollar

There are several parameters involved in the temporary drop in the price of the U.S. dollar. Siavash Gheibipour, an expert in economic and financial affairs, explains:

“The fluctuation period in terms of time has had a series of short ups and downs during the last six months. Why these fluctuations were formed in this way is divided into two parts, a part of non-economic, non-banking, and non-monetary factors, being the impact of external conditions, foreign relations, the opening of foreign relations with Saudi Arabia and China, and the release of financial resources in Iraq and the UAE. This was a process that partially reduced the psychological impact of the nosediving currency, which took place in the first half of March. What we are witnessing today, and from my analysis, is due to the beginning of the year (starting from 21 March) and the budget launch, which leads to a 30 percent increase in the budget. This budget increase results in added inflation in the economy. Those who trade in the currency market expect that the inflation caused by the budget will reduce the country’s national currency credibility and the dollar will become more expensive.”

According to this expert, the real value of the currency in Iran should be based on the value of one consumer goods basket in U.S. dollars is equivalent to its value in a third country. If there is a difference, the government has started “exploiting the currency”. In fact, the same purchasing power is the basis for measuring various currencies. However, the same amount of purchase depends on continuous and competitive production outside of the country’s borders.

Since Iran’s next fiscal budget is inflationary and there is no hope of correcting the country’s monetary and currency policies, the trend of fluctuations in the currency value will continue into this year. Changes in bank interest rates in Iran and political openings can only restrain the increase in the price of the dollar for limited periods of time.

As Iran enters the new Persian year, regime experts are raising concerns about the state of the country’s economy. Many predict that the economic crisis will deepen in comparison with the previous year, with little hope for positive change. Experts are warning regime officials that the worsening economic situation could be a major contributing factor to potential social unrest. According to reports, 80% of the population is already living on the brink of poverty.
Last year, the country faced multiple challenges, including an average inflation rate of over 40%, suspension of negotiations to revive the nuclear deal, months of nationwide protests, a sharp decline in the value of the rial in the last three months of the Persian year, and mounting tensions between the regime and Europe. These factors compounded to exacerbate the existing economic crisis in the country.
The Iranian regime hopes to lift some of the pressure and alleviate its self-imposed global and regional isolation by re-establishing diplomatic relations with Saudi Arabia. However, experts are skeptical that this or similar agreements would lead to a swift improvement in the economy. They argue that the regime’s spending is the key factor that affects the economy and that diplomatic efforts alone will not reduce inflation, increase economic growth, or restore the value of the rial.
Experts are concerned about the value of the rial and warn that previous attempts to fix the problem have resulted in sharp increases in the government’s budget deficit the following year. The budget deficit is seen as a major contributor to the problem of printing money and reducing the value of the rial, leading to further economic problems in the coming year. Therefore, experts believe that without addressing underlying economic issues, the government’s efforts to improve diplomatic relations with countries of the region will have limited impact on the country’s economy.
The dwindling value of the rial has made it increasingly difficult, and even impossible, for domestic investors to invest in Iran. This lack of investment, particularly in domestic production, is a major concern as it prevents job creation and economic growth.
Since 2017, Iran’s infrastructure has been steadily weakening, with no foreign investment coming into the country. This trend has continued and intensified each year, creating a significant challenge for the regime this year.
Another challenge facing Iran in the coming year is the shortage of financial resources. The regime planned to sell government properties and assets to the private sector, mostly entities controlled by the IRGC, in order to boost financial productivity. However, this strategy has proven to be a disappointment and failure. The regime will need to find new ways to address the financial shortfall if it hopes to avoid further economic hardship in the future.
There is considerable skepticism that the regime will be able to compensate for its budget deficit through the sale of government properties.
One of the biggest challenges facing Iran’s economy is the persistent inflation problem. In 2022, inflation was almost 50%, and the average inflation rate over the last five years has been around 40%. Addressing the underlying causes of inflation will be crucial for the regime to stabilize the national currency and prevent further economic damage.
Experts warn that without a clear understanding of monetary policy, the regime risks increasing inflation and further devaluing the national currency. Last year, severe currency fluctuations caused significant harm to Iran’s economy, and the Central Bank was unable to prevent the increase in the exchange rate. This ongoing process could lead to a crisis in the country’s economy in 2023.
Experts also emphasize that improving international relations, reducing global conflicts, easing sanctions, and adopting the financial policies of the FATF are essential for the country’s economic recovery. Despite claims by regime officials pertaining to having an independent economy, Iran’s economy is closely tied to international affairs, making it imperative for the regime to address global concerns in order to achieve sustainable economic growth.
The multitude of economic challenges, especially the rising inflation rate is eroding the middle and lower classes’ purchasing power. Addressing these problems will require a comprehensive and strategic approach that prioritizes economic stability and growth, investment, and the creation of a favorable business environment. Unfortunately, such matters happen to be at the bottom of the list of the regime’s priorities.