The economic prosperity fueled by the growing oil revenues of the mid- 1970s encouraged a construction boom. The expansion of the construction industry slowed, however, and all but stopped after the Revolution. Construction continued to decline until 1984. The domestic recession, created by deliberate governmenÍÍÍÍt reductions in oil production in 1979, caused a drop in new construction starts, fewer buyers, and a decreased demand for materials.

In FY 1983, the government decided once again to encourage private sector participation in construction. The subsequent increase in loans to private industries by commercial banks revived the construction industry by 1984, although it could not keep pace with housing needs in urban areas.

The housing shortage became severe by 1986. Exacerbated by population pressures, the shortage was an especially serious problem in Tehran. The allocation of credit for building construction accounted for 7 to 8 percent of the GNP. Half of all the 900,000 housing applicants countrywide were in Tehran, yet only half of these received housing. Tehran issued 25 percent of the country's housing permits, with fixed construction investment accounting for 2 percent of the GNP. The government deliberately discouraged further expansion in Tehran, and new building construction regulations in 1986 tied construction permits to the ownership of land through an earlier order from a religious magistrate. According to the director of the Urban Land Organization, a government body created in June 1979 to administer the transfer of nationalized land to deserving families for housing purposes, the housing sector in early 1986 needed about US$10 billion to alleviate the shortage. The banks could only provide about US$4 billion of this total.

Data as of December 1987