The study presents a political economic analysis of spatial inequality in Tehran focusing on four sectors of social reproduction, namely, housing, healthcare, education, and transportation. The study argues that spatial inequality is rooted in the peculiarities of Iranian capitalism. Struggling with low productivity, the manufacturing sector needs wages to remain low and unemployment to remain high in order to maintain profits. Bringing urban amenities and resources into the market is the second strategy, a process facilitated by the state. The study also discusses the role of the luxury market in neutralising the anticipated negative feedback mechanism of low effective demand.

This paper investigates the structural political economic drivers of the housing market in urban Iran and the ways in which social and economic dynamics of the housing sector are rooted in peculiarities of Iranian capitalism, characterized by a relatively small public economy, low productivity of capital, and an underdeveloped financial system. The paper examines these processes and mechanisms in the light of the illustrative case of the country’s first and largest state-led housing program, the Mehr Housing Program (MHP). The paper argues that the program’s failure is due primarily to the state’s market-oriented approach toward housing. The MHP’s units were sold at their market prices, and the state subsidized the land to the developers with low rent, facilitating investments. Utilizing an intersectoral and multi-scalar analytical framework, we further argue that what drives the investment is absolute ground rent present in the housing sector due to its labor-intensive character. The high level of rent is due to persistently low profitability in the manufacturing sector and, subsequently, excess profits in construction and housing. Thus, rent-seeking investors tend to invest in housing. These peculiarities of the Iranian economy determined the trajectory and the failure of the MHP as a public housing initiative.