Releasing market forces merely pushed housing out of reach of even middle income groups
In 1988 a housing policy, code named “permitting the markets to work” came to operation. It was miraculously to solve the housing problem. Yet by 1993 it was in such shambles that not only were the poor worse off but even the middle income groups had difficulties keeping the roof over their heads. The root cause of the most serious wave of urban uprisings since the 1979 revolution can be traced here.
In the first ten years following the revolution housing, and specifically housing for the poor, was a central issue on the socio-political agenda. The Shah had been overthrown by the poor. The squatters and shanty-town dwellers (khoshneshin) had been the battering ram of the revolution. It was not for nothing that Ayatollah Khomeini had called these the “lord” of the ulema. They had transformed a marginalised clergy into undisputed rulers, the “absolute velayate faghih” [1], and oblivious to their obscurantism placed them at the head of the most modern of institutions: the modern state. Later the same “lords” made up the volunteer army which fought and died in its thousands in the eight year war with Iraq.
The new clerical power had to implant its grass-root organisations inside the body of a capitalist society. The revolution, however, had already made rash promises, and even some moves, beyond the confines of capitalism. The sacredness of private property had been violated. Workers took over factories, poor peasants divided up large estates of runaway owners, empty urban buildings and vacant urban plots of land were occupied.
The housing policy which tried to make sense of this chaotic situation was marked by constant contradictions and ups and downs. The years from the revolution to the end of the Iran-Iraq war fall into two phases. In the first two years (1979-81) the masses in the street set the agenda. Thereafter (1981-8) the new regime, a religious despotism, totalitarian and anti-secular [2] took deep roots.
These were years of a power vacuum into which stepped a variety of political groupings, rival organisations and labour unions. The press was relatively free and shapeless crowds expressed the wishes of different political movements. Above, at the helm of government, confusion and rivalry was supreme. For official as well as unofficial groups working in poor neighbourhoods, the greatest competition was over who could mobilise the poor best.
In a clever and decisive move the ruling clergy, seeking a solid social base against both left and right, made the mustaza’fan (destitute) the heroes of the struggle for the Islamic revolution. Within this broad category the khoshneshin occupied a central position. Within a few days of coming to power, Khomeini declared that “no one should remain homeless in this country” and promised free water and electricity for the poor, to the dismay of his prime minister Mehdi Bazargan [3].
In actual practice the process was very uneven. A number of political groupings close to the clergy in the governing bloc took the initiative. They formed the Office for the Housing of the Mostaza’fan (literally the weak meaning the poor) and the Housing Foundation of the Islamic Republic. Through these and other organs they tried to win over the spontaneous movement below for the clerical power being organised above by outright seizure of land and houses and its reallocation to the poor.
In contrast, rival factions within the emerging revolutionary institutions chose different paths. The Revolutionary Guards (Pasdaran), the most powerful of these factions, opposed the confiscations and instead proposed to upgrade poor neighbourhoods. At the same time they obstructed volunteer groups from doing the same [3].
These rivalries had significant implications for the housing sector. It legitimised direct actions and encouraged the making of demands. In this confused atmosphere private investment and the private market in housing totally collapsed.
The war was “a god sent” for the mullahs [4]. It allowed the centralisation and institutionalisation of political power. Organised workers, secular movements and leftist groups were all suppressed. All resources were mobilised for the war.
While law and order was established including the legalisation and regulation of the housing sector, the war created a new dilemma: how do you mobilise your insurrectionary public support base for the war effort while at the same time preventing it from squatting and other such illegal activities. The paradoxical fact was that the destitute, the regime’s insurrectionary social base, was at one and at the same time its warrior in the “holy war” against Iraq and an assaulted of the “holy privilege” i.e. property. Faced with these conflicting pulls, it was difficult to formulate a consistent and coherent housing policy - especially for the poor.
Yet some legal and administrative order was arrived at restricting the spontaneous seizures. The most important were:
q Article 31 of the Constitution recognised the Office for the Housing of the Mostaza’fan and the Housing Foundation of the Islamic Republic. Also the right of people to posses housing “commensurate with their need” with the “rural population and workers” as priority groups.
q The Urban Land Law limited urban land ownership to 1,000 square metres per household.
q The law on vacant houses obliged owners to let their houses within a month.
q An act introduced rent control in large cities.
q An act on semi-built housing ordered owners to restart construction.
q An act calling for repayment of loans given out by the Bank of Housing before the revolution. [5]
Yet all efforts to regulate the repossession of confiscated property were futile. What prevailed as “policy” combined four confusing strategies: selective housing provision for the poor, halting rural migration, demolishing illegal structures and paradoxically tolerating the latter [3]. In practice none prevailed.
The housing supply was totally inadequate for demand. The Housing Foundation, set up in April 1979 in response to Khomeini’s decree largely through donations, continued to try to provide housing for the poor. But during the war the bulk of its activities was directed at reconstruction and its function was limited to promoting self-help housing through interest-free loans, provision of building materials and technical assistance [6].
Between 1984 and 1986 the total investment on housing by the relevant ministry was 70 billion rials, almost 40% of the 172 billion rials invested between 1981-3. It fell from 48 billion rials in 1984 to 39 bn rials in 1986 (CHECK IT DOES NOT ADD UP). The constraints is also evident in the government housing budget which fell successively from 67 bn rials in 1976 to 54 bn in 1981 and 21 bn in 1986. In the same period the total public service spending fell from 16% to 1% of the government budget.
The gap was not filled by private investment. Indeed there was a reduction of 31% in private investment in housing between 1982 and 1989. Housing shortage became more acute. New buildings fell from 320,000 homes in the revolutionary year of 1977 to 134,000 in 1986, less than half the estimated annual need of 300,000 units. [7]
Other half-measures, such as the relocating slum dwellers by offering loans and assistance, were swamped by the mass rural migration to the cities. In the Teheran Mayor’s words “this social catastrophe has become a major threat to the revolution and the Islamic Republic.” Measures based on tighter economic pressures and discrimination failed to stem the tide [8]. By 1988 shanty town population within the capital’s city limits - 100,000 households - was almost five times that of 1980. Outside the city limits over 20 settlements had mushroomed by 1986 with a population of 460,000 - six times their size in 1976 [9]. By the decade’s end the number of new townships within and around Teheran rose to 100 [3].
The war years saw not only a rapid decline in the country’s economy, but also a steady expansion in role of the state and the simultaneous formation of a powerful black market:
The GDP fell by an average 1.3% per annum and the per-capita GDP was halved from 114,000 rials in 1977 to 55,500 rials in 1987 (1974 prices). The collapse of investment was even more pronounced. Net investment (in 1974 prices) fell from 518 billion rials in 1983 to 198 billion in 1987. There was also a steep fall in oil income from US$20.5 billion in 1983 to $7.6 bn in 1988.
The budget deficit was out of control. In 1977, the year before the revolution, it had been 365 billion rials. By 1988 it had climbed to 2,146 bn rials - half the budget. This was rivalled by the quantity of money in circulation which rose almost 10 fold from 1,625 bn in 1976 to 15,678 bn rials in 1988 which in turn fuelled the black market and speculative activities which echoed through the whole economic and social life of the country [10].
Meanwhile the state was turned into the absolute and permanent intervenor in the economic and socio-political life of the country. The state bureaucracy ballooned. In the decade following 1976 state employees more than doubled from 1.67 to 3.46 million. Meanwhile unemployment also went out of control. Official unemployment rates rose from 11.9% in 1982 to 14.4% in 1986 and 15.9% in 1988. 47.2% of those in employment in 1988 were in the services [11].
It was becoming clear that the country was in dire need of a change in economic policy. Yet while the war needed the sacrifice of millions it was felt unwise to launch into policies where those millions were to the sacrificed. Only the war’s end allowed the introduction of a faithful copy of the IMF Structural Adjustment Programme, but not before a viscous dispute within the regime. The reforms were to last for five years.
Economic adjustment surfaced in 1988 disguised under the grand title of “Plan for Economic Reconstruction” and was the guiding principle for the first Five Year Plan (1989-93). Its two main components were privatisation and marketisation. This was a total about turn in government’s policies from one of import substitution to one of expanding exports, from a policy of relative economic independence to that of multilateral dependence.
The fundamental change in policy was landed on a reluctant regime by fate which also forced a consensus, though both its direction and composition continued to be a subject of argument. In the face of domestic and foreign pressure, the main concern was which policies to ditch, and which to retain, while not allowing the pressures to upset the apple cart. The challenges and pressures were immense.
The world of the late 1980’s was undergoing fundamental changes politically, economically and ideologically. The collapse of the Soviet Bloc, the ending of the Cold War and the emerging “new world order” (or more correctly “disorder”) had the effect of limiting the breathing space of the Islamic Republic even further. When the bipolar world disappeared a regime simultaneously “out of its time” and “Bonapartist” lost its manoeuvring space [12]. Added to these was the humiliating defeat in the war, the death of Ayatollah Khomeini, and the fact that policies pursued to date had been discredited. It all called for urgent solutions. Yet the options were limited.
The complete about turn which the regime chose, provoked an intense factional in-fighting within the ruling alliance. Political power was restructured. The radicals were ousted and for the first time since the revolution the politico-economic apparatus (and in particular the executive, articulated in a more powerful presidency and in the person of Rafsanjani) was placed above the ideological one [13].
The years 1989 to 1993 saw a more coherent housing policy emerging, one no longer concerned with the burning issues of immediate housing for the poor. Shanty town dwellers ceased to “lord” over the ulema. Rafsanjani, fortified with increased executive powers, described shanty town dwellers in his first speech to parliament as the main source of social and political difficulties. [14] Housing ceased to be regarded as a social need. On the contrary the First Five Year Plan over emphasised housing as a key economic sector from the macro-economic angle [15]
There was to be a rapid growth in the housing sector with 2.4 million new units planned for the years 1989-93. Three sets of policies was to be at the core: re-migration, privatisation and marketisation [15].
Remigration: Uncontrolled rural migration into urban was seen as the root cause of rapidly expanding cities, mushrooming squatter settlements, shortage of housing, and spiralling house and rent prices. The solution was to severely restrict expansion of existing shanty towns, pull down any illegal housing, halt policies felt to encourage migration (such as infrastructural provision in out-of city limit shanty towns) and to improve life in rural areas.
Privatisation: This followed the all too apparent failure of the state in the provision of housing. Housing was to be totally given over to the private sector, the role of the state being confined to a regulator of the housing market, rather than the producer and financier.
1. Spending on housing was to be cut. Thus the already paltry sums spent on up-grading shanty towns or providing housing to selected urban poor was cut from 3% of government budget in 1990 to 2% in 1991 [16]
2. A new subsidised housing loan, amounting to 8% below the current interest rates, was introduced for private developers who met the low-price consumption housing model proposed by the ministry [17].
3. Priority was given to private developers with projects of over 30 units to access to building materials from state enterprises. At a time when the acute shortage of building materials had forced black market price up ten fold, this was an inducement. [15]
4. The exclusively state owned banks were given permission to invest in housing by protecting private investors either through partnership or by purchasing their products [17]
Marketisation: This lay at the core of the new housing policy and incorporated two distinct strategies: restoration of property rights and withdrawing the government from the housing exchange market.
The restoration of property rights was a fundamental precondition for the markets to “operate”. Laws and activities violating private ownership had to be removed. This move clashed with the dominant tendencies within the political power both in the ideological and in the institutional sense. The laws on urban land, on vacant housing and on rent control in large towns (described above) were shelved. Revolutionary courts were prevented from carrying out unlawful activities relating to property rights. Large numbers of confiscated land and properties were returned to previous owners.
Price controls were removed from the land and housing market and well as building materials and equipment. The most influential decision was to remove government control over foreign exchange rates. Those products or services which had been a beneficiaries to cut-price official foreign exchange rates rose 10 fold or more in price. Other important measures were removal of price control on imports, or products of state enterprises, as well as the shelving of policies forbidding certain activities [18]. Yet the outcome confounded the expectations:
Housing Production fell from 116,000 units in 1987 to 64,000 in 1990 - about six times lower than the Plan targets and half that of the previous three years. A senior official economist complained that the output of the housing sector during the period where the markets were supposed to be facilitated was only one third of Plan expectations [19]. The Deputy governor of Isfahan, one of the most industrialised provinces - lamented that the total the number of applications for planning permission in 1993 was 58% of that in the previous year and called for urgent action to avert the “disaster” in housing [20]
Price of housing and rents rocketed between 1989 and 1993. Housing costs in urban areas rose from 60,000 rials per square meter in 1988 to 175,000 per square meter in 1991 and to 250,000 per square meter in 1992. The relative increase in price-cost ratio in middle and high income housing was even greater . For example, home prices in Teheran increased to 517,000 rials per square meter - almost twice its cost price. In higher income neighbourhoods it increased to 1,220,000 rials per square meter in 1993 and 2,347,000 rials per square meter in 1994. This was 5-9 times higher than the average building cost [21].
A similar trend was seen in rents which according to official statements increased even more steeply than house prices. Between 1992 and 1993 rent in certain urban areas had a record three fold rise in one year [22].
Incomes: Meanwhile real structural readjustment had taken place in incomes. Rashidi estimates that by the end of the First 5-Year plan 4% of the highest income group gained 38-40% of Gross Domestic Income, while the lower 30% shared only 4-5% [18]. Ali Reza Mahjoub, secretary general of the Khane’e Kargar (an Islamic worker’s union) complained that the worker’s housing benefit had remained unchanged at 4,000 rials per month since 1981, while rents in low income neighbourhoods had risen 15 fold. In 1980, he added, the minimum wage was 17,000 rials per month and the rent of a typical home in working class districts was 5,000 rials per month - less than 30% [23].
Low income groups saw their prospects for a home recede in the five years of the structural adjustment programme. Moreover, self help initiatives became impractical and the workers self-help housing movement had not been supported since 1991. Co-operatives had neither access to government land nor to subsidised housing loans or fixed price building materials. Housing was simply not affordable [24]
In the years 1989-93 the housing industry almost totally collapsed, apart from some luxury developments. The already high unemployment was worsened especially among the unskilled. Housing condition for the poor and middle income groups deteriorated.
Demolition squads roamed the shanty towns while restrictions on further expansion pushed the poor into increasingly cramped conditions. Considering the price/income ration of housing in middle class neighbourhoods, which increased by 800% in the same period, upward filtering became inevitable. This took place in an escalating movement of sub-dividing plots and increasing density. Upward filtering blurred or even obliterated the conventional class barriers between middle and lower income groups
The political consequences of markets being “enabled” has been dramatic. From August 1991 to August 1994 six major riots took place in Teheran, Shiraz, Arak, Mashad, Ghazvin, and Tabriz and there were frequent minor clashes in other urban centres. Most of these involved urban squatters concerned at the destruction of their homes and communities or demanding public services. The face of the crowd in these riots were new. These were the same shapeless crowds that built the bridge upon which the clergy walked from the pulpit to the governor’s house [25]
These riots, along with other political unrests led to another about-turn. The Minister of the Economy, the heads of the Central Bank and of the Budget and Planning Organisation - all three designers of the new economic policy - were fired. Rafsanjani was on the verge of resigning. The second 5-year plan was shelved for a year and was subjected to major rewrite. The Adjustment Policy was itself the subject of adjustment. Instead of enabling the market to operate, the state was enabling itself to “hyper- regulate”. [26]
A Mehrdad, August 1996
1. Valayat Faghih, literally the rule of the jurisprudence, is the central tenet of the Islamic Republic where a “just and wise” religious jurisprudence (faghih) has total control (velayat) over all civil and political society. Khomeini later extended it to the right to suspend primary religious commandments in the interest of the Islamic state (absolute velayate faghih)
2. Mehrdad A. Iran Bulletin Winter 1994
3. Bayat A. Middle East Report Nov-Dec 1994
4. Khomeini called it a “divine gift”.
5. Ministry of Housing . Housing Laws and Regulations, Teheran 1989
6. Ettala’at April 1994
7. Iran Statistical Year Book, 1993
8. Ettela’at 1988
9. Jomhuri Islami June 3, 1992
10. Mehrdad A Iran Bulletin Summer 1994
11. Attari K. 1995 Ettela’at vol 9 no 5-6 1995
12. The revolutionary Islamic Movement. Part 3. Mehrdad A, Iran Bulletin, Oct-Dec 1993.By out of time is meant an incongruity between the Islamic Republic’s ideological content and a modern, urbanised and industrialised state.
13. Mehrdad A Iran Bulletin April-June 1993.
14. Resalat August 27 1989
15. Keyhan (Teheran) August 21 1989.
16. Iran Statistical Book 1993
17. Resalat 21 February 1990
18 Mehrdad A. Iran Bulletin January- March 1993
19. Rashidi A 28 November 28, 1995.
20. Rashidi A. Review of the outcome of the 5 year Plan. Salam
21. Ministry of Housing July 25 1994
22. Deputy governor of Isfahan, October 10 1993.
23 Ettela’at November 11 1994
24. Mahjoub. Ettela’at October 10 1994.
25 Mehrdad A. Iran Bulletin Spring 1995.
26 Mehrdad A. Iran Bulletin Winter 1994