The Externality of Public Housing Projects in Iran
Introduction
Public housing projects are among the most contested urban development initiatives worldwide, often sparking debates on their broader impact on surrounding properties. On one hand, the introduction of public housing can be seen as a catalyst for enhancing the availability of amenities, increasing access to affordable living spaces, and even driving up property values in nearby areas. On the other hand, critics argue that such projects, particularly those concentrated in low-income areas, may have negative spillover effects. These could include declines in property values, reduced neighbourhood desirability, and a concentration of socio-economic disadvantages that perpetuate cycles of poverty. As the conversation surrounding public housing continues to evolve, it remains essential to assess its impact on both local economies and the broader housing market.
The dynamics of public housing, especially when viewed through the lens of neighbouring property values, have been examined in various studies primarily focused on developed nations. These studies offer valuable insights into the potential positive and negative consequences of such housing projects. However, a gap remains in the empirical analysis of public housing’s effects in developing countries. To address this, our research investigates the Mehr Housing Project in Iran, a massive initiative aimed at providing affordable housing to low-income households. This study aims to fill the existing gap by analyzing the effects of the Mehr housing units on surrounding property values, using a difference-in-differences strategy based on housing transaction data from 19 large cities in Iran.
The Mehr Housing Project and its Objectives
The Mehr Housing Project was unveiled by the Iranian government in 2007 with the ambitious goal of constructing 2 million affordable apartments in cities across the country. This initiative aimed to alleviate the housing crisis faced by millions of low-income families and to provide an accessible option for those previously unable to afford homeownership. The project was designed to target urban areas where the need for affordable housing was most acute, though its implementation was widespread, spanning cities of various sizes and socio-economic compositions.
Public housing projects like Mehr have the potential to address significant housing shortages in rapidly urbanizing countries. However, the potential for unintended consequences—particularly concerning the effects on surrounding properties and neighbourhoods—remains a key concern. While these housing projects can alleviate pressure on housing demand in the short term, their long-term impact on local real estate markets is less predictable. As a result, understanding the economic ramifications of public housing initiatives is critical for policymakers, urban planners, and residents alike.
The Impact of Public Housing on Property Values
Research on the impact of public housing projects in developed countries often suggests mixed outcomes. In some cases, the introduction of public housing leads to improved amenities and infrastructure in surrounding areas, thus increasing property values. In other situations, the concentration of low-income households can result in reduced demand for housing in nearby areas, leading to a decrease in property values. The net effect on housing markets depends on a variety of factors, including the size and scope of the project, the socio-economic characteristics of the area, and the quality of surrounding infrastructure.
The Mehr housing project, with its scale and reach, offers a valuable case study for understanding how public housing initiatives affect property values in a developing country. Unlike many public housing programs in developed nations, the Mehr project targets a much larger population of low-income households and is spread across diverse urban environments. Therefore, examining its impact offers new insights into how large-scale public housing can influence the real estate market in developing nations.
Methodology: Difference-in-Differences Strategy
To analyze the impact of the Mehr housing project on local property values, we use a difference-in-differences (DiD) methodology. This approach compares the changes in house prices in areas affected by the delivery of Mehr units with those in regions that did not receive any new housing units. By controlling for various factors that may influence house prices—such as city-specific economic trends, regional characteristics, and temporal fluctuations—we can isolate the effect of the Mehr housing project itself on property values.
The key to this methodology is the use of postal regions as a unit of analysis. By focusing on postal regions rather than individual properties, we ensure that our results are based on broader geographic areas that capture the potential spillover effects of the public housing project. Additionally, we take into account the exact delivery times of the Mehr units, allowing us to assess how property values changed in response to the delivery of the public housing.
Our dataset includes transaction data for houses sold in 19 large cities across Iran from 2010 to mid-2019. This period captures both the rollout of the Mehr housing units and the subsequent evolution of the housing market. By comparing house price changes in Mehr postal regions with those in non-Mehr postal regions, we can estimate the effect of the public housing project on local real estate markets.
Results: Impact of Mehr Housing on Property Values
Our analysis reveals that the delivery of Mehr housing units had a significant impact on property values in surrounding areas. Specifically, house prices in Mehr postal regions decreased by approximately 11 percent relative to prices in non-Mehr postal regions. This effect was statistically significant at the 5 percent level, suggesting that the delivery of public housing resulted in a measurable decline in property values in areas close to the project sites.
This finding is consistent with the idea that public housing projects, particularly those that concentrate on low-income households, can exert downward pressure on nearby property values. The decrease in property values may be attributable to a variety of factors, including the perceived disamenity effects associated with the influx of lower-income residents, changes in local amenities, and shifts in the social fabric of the neighbourhood. Although public housing can provide essential housing for vulnerable populations, it can also alter the dynamics of surrounding communities in ways that may not be favorable for existing homeowners.
Robustness Checks and Further Insights
To ensure the robustness of our results, we conduct several sensitivity tests. First, we include city-by-time fixed effects in our model, which accounts for time-specific factors that may affect all cities simultaneously, such as national economic conditions or macroeconomic trends. Second, we allow for differential trends in suburban locations, recognizing that the impact of public housing may differ between urban centres and their surrounding suburbs. Finally, we examine the effects of the Mehr housing project in regions with higher initial property values to explore whether the impact on prices is more pronounced in more affluent areas.
These robustness checks confirm that the negative effect of the Mehr housing project on property values is both significant and consistent across various specifications. While some variation exists, particularly in more affluent areas, the overall trend points to a reduction in house prices following the delivery of public housing.
Additionally, we explore potential channels through which these disamenity effects might arise. One hypothesis is that the arrival of public housing projects changes the perceptions of the neighbourhood, leading to a reduction in the desirability of the area. This shift may manifest in lower demand for housing, resulting in lower property values. Further research is needed to examine these potential mechanisms in more detail, but our findings suggest that the presence of public housing units may influence neighbourhood dynamics in ways that are detrimental to existing homeowners.
Conclusion
The Mehr Housing Project in Iran offers valuable insights into the complex relationship between public housing and local property markets in developing countries. Our study highlights the potential negative effects of such projects on property values, particularly when they are concentrated in low-income areas. While public housing plays a crucial role in addressing housing shortages and providing affordable options for underserved populations, it is essential to carefully consider the broader implications for neighbouring properties and communities.
The results of our analysis contribute to the growing body of literature on the economic impact of public housing, emphasizing the need for further research into the effects of large-scale housing initiatives in developing countries. As urban populations continue to grow, understanding the dynamics of public housing and its effects on local real estate markets will be critical for policymakers seeking to balance the need for affordable housing with the broader goals of urban development and economic stability.
For further reading:
The Externality of Large-scale Affordable Housing Construction …