Transaction Costs in Mass Housing Production in Iran

Mass production of housing units has been an important policy pursued by Iranian government in recent years. Mass production and building small housing units have been among major pillars of the government’s housing policy. Tax exemptions, granting inexpensive land and discount on the interest rate of bank facilities have been major supports provided by government for mass producers of housing units in recent years. Granting land on lease and eliminating land price from housing production function (by implementing Mehr Housing Plan) were other incentives considered by the government. Such supports, however, have not had a remarkable effect on encouraging mass housing production. Mass production of housing units and taking advantage of the said supports entail many expenses other than production cost. These expenses cannot be explained through a neoclassic economic theory. This paper is based on findings of a research project for the assessment of government’s mass housing policy. It uses transactions cost theory of the World Bank to assess transactions costs for 10 phases of building mass housing units before discussing reasons for the failure of the aforesaid supports to stimulate mass housing production. Findings show that the supports have been provided for only some of those 10 phases and have not been available for other phases.