Residential Rents Keep Climbing Despite Government-Enforced Caps

November 3, 2022
real estate

G overnment officials began to enforce measures to control the ever-rising housing rents in early 2020 by capping an increase for three years in a row.

The heads of three branches of power have also set rent ceilings for the current Iranian year (started March 21). However, data show that the measure has not been successful, and rents have continued to ascend, regardless of the rent cap. This was stated by Nasser Zakeri, an economist, in a write-up for the Persian daily Shargh. A translation of the text follows:

In June, authorities said the ceiling is legally binding, but the passage of time has proved that the rental market pays no attention to this matter.

Over the past five months, no official report has been released regarding supervision over the rent ceiling’s compliance or violation, and those in charge also make no mention of this measure or its effectiveness. If it was effective, authorities would have definitely boasted about it.

The following are the main reasons behind the rental housing market’s failure to comply with the ceiling:

The guidelines might have countless loopholes that enable real-estate agents or landlords to bypass the rules and impose their will on tenants. These loopholes are undeniable, but even after three years of implementing these guidelines, officials have not identified those loopholes or improved them.

Some people might argue that the interference of the government is a wrong, inefficient policy and prices are beyond the control of policymakers.

Two points should be mentioned here: Firstly, the rental housing market is less affected by price changes compared with other markets. Suppliers of housing don’t stop making investment in construction and supply in the medium-term, even when the law bans a price increase.

In addition, a decline in investment is not necessarily a negative factor in the long run; it might have resulted from the exit of speculative investment from the housing market.

Secondly, interference in the market does not imply that the government is distancing itself from the free market economy and imposing restrictions; it is akin to combating the hoarding of essential goods. Housing is similar to an essential commodity, as it affects the lives and welfare of citizens. Hence, housing should not be attacked by the proponents of free market.

Lack of legal accountability allows landlords to pay no heed to the rent increase cap. The absence of an efficient supervision has led to the unconscionable increase in rents during recent months. Under the circumstances, landlords keep raising rents without worrying about the consequences.

The persistence of such a situation will promote the idea that tenants are unprotected in the market and officials have left them in the lurch, by only giving moral advice to landlords.

A short-term solution is the establishment of a strict supervision system to control rents and punish those asking higher than the permitted rent increase. The move would also improve the image of the government as an authoritative institution, one which is aware of what’s going on in the society.


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