US Sanctions Squeeze Iran Middle Class, Upend Housing Sector

Tuesday, 23 July, 2019 - 08:00 -

US Sanctions Squeeze Iran Middle Class, Upend Housing Sector

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In this July 6, 2019 photo, a woman walks in District 12, a poor area plagued by drug addiction and other social problems, in Tehran, Iran. (AP)
Asharq Al-Awsat
Iran analyst Adnan Tabatabai said he believes Iranians are "reluctant to take their grievances to the street" for now, amid fear of further chaos and pushback by the authorities.

The economy contracted by 4.9% from March 2018 to March 2019. It is expected to shrink by an additional 5.5% in the year ending March 2020, according to Iranian figures. The official inflation rate has risen to 35%, up from 23.8% in the March 2018 to March 2019 period.

The housing and construction sector, which makes up about one-quarter of the economy and is the top destination for savings and investments, has been thrown out of balance.

Property owners are reluctant to sell and landlords are sharply raising rents because of the currency collapse, said Ali Dadpay, a finance professor at the University of Dallas. He said an estimated 490,000 homes stand empty in and around the capital, including more than 40,000 units added this year.

At the same time, construction lags far behind the need of 1.2 million new homes a year nationwide, said Hesam Oghabaei, deputy head of the Tehran association of real estate agents. He said about 25% of Tehran's residents live in rented apartments, and the vast majority cannot afford the price increases.

The Peyman family — elderly parents and eight adult children — own a 110 square meter (1,180 square feet) apartment in Tehran's District 12, a poor area plagued by drug addiction and other social problems. More than a decade ago, the Peymans rented the apartment, and used the extra income to move to a nicer area.

Now they are back in District 12, renovating the old apartment after being squeezed out of the good neighborhood by a rent hike.

"We have to come here because we have no other choice," said the patriarch, Moslem, 65. Four unmarried children will live with him and his wife. Across-the-board price increases put marriage out of reach.

One of Tehran's newest areas, District 22, is under construction on the northwestern edge of the city. It consists of apartment high-rises and shopping malls arranged around an artificial lake called Chitgar.

Maryam Alidadi and her husband bought an 82-square-meter (880 square feet) apartment here in December, downsizing by a third from their rented home in a more affluent area.

"Our standard of living has dropped considerably," she said, adding that she now regrets having quit her government job four years ago when her son Rami was born.

The US sanctions have proven particularly devastating for Iran's large middle class, said Dadpay, the finance professor. "This is the economic class that depends on the global economy, depends on their skillsets, and most of them are earning fixed incomes," he said.

The economic freefall could shape Iran's domestic politics, with parliament elections in February posing the first test. Middle class voters have traditionally favored reformist candidates but might sit out voting because of a lack of alternatives, inadvertently boosting hard-liners.

Pro-reform politicians who favor a greater opening to the West are closely linked to the nuclear deal.

With the deal faltering, the hard-liners, including the Revolutionary Guard, are becoming more entrenched, said Geranmayeh, the analyst.

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