Dr. Imtithal Al-Thumairi, an economist and faculty member in the Department of Economics at King Saud University, called for measures to provide affordable housing, noting the need to set a permissible cap on annual rent increases and to work to curb rising rents by increasing the housing supply and allowing for ”horizontal height”—multiple stories—in specific, desirable residential neighborhoods.
Declining inflationary pressures
A faculty member in the Department of Economics at King Saud University noted that the contribution of the housing sector is rising at a faster rate than that of the other sectors comprising the general inflation index. She explained that energy-related products such as water, electricity, gas, and transportation fuel collectively account for only about 3.7% of the Consumer Price Index basket.
In the same vein, the recently published book *The Saudi Economy 2015* by Dr. Imtithal Al-Thumairi addressed the decline in inflationary pressures in the Kingdom in 2015, with the inflation rate standing at 2.2% compared to approximately 2.7% in 2014, while it rose in the first quarter of 2016, reaching 4.3% due to cuts in fuel and energy subsidies. The analysis noted several factors that contributed to keeping inflation at this level and preventing it from rising further, including lower global food prices, the strengthening of the U.S. dollar—which led to an appreciation of the Saudi riyal against most major global currencies—and a notable decline in domestic liquidity resulting from reduced government spending caused by increased pressure on the general budget due to the sharp drop in global oil prices.
Rising housing costs
Al-Thumairi noted that the recent adjustments to energy prices in the 2016 budget have led to housing and transportation emerging as the two main sources of inflation due to the sharp rise in the prices of their components, with inflation in the housing sector rising from 2.6% in the first quarter of 2015 to 8.3% in the first quarter of 2016, reaching its highest level in six years, Consequently, the contribution of the housing sector and related services to overall inflation rose from 29% in the first quarter of 2015 to 49% in the first quarter of 2016.
She noted that in 2016, the Kingdom adopted a plan to reform energy prices, including those for various types of fuel as well as electricity rates, as low domestic energy prices—which were below global and regional levels and below the opportunity cost—led to inefficient energy use, allowed non-targeted groups to benefit from energy subsidies, and resulted in waste and lost government revenue, She explained that adjusting domestic energy prices is expected to restore subsidies to those who are truly eligible, stimulate investment, channel it toward sectors that yield the best returns, expand opportunities for conservation, and generate higher revenues for the state, Furthermore, linking energy price reform to programs aimed at improving energy efficiency and implementing these reforms gradually will contribute to sustainable growth, equitable distribution, and increased transparency.
The Impact of Residential Rent
Dr. Al-Thumairi noted that in 1995, the Kingdom took measures similar to those taken in 2016 regarding energy price adjustments, which had a similar impact on inflation at that time, with the inflation rate reaching 5.3% in 1995 compared to approximately 1.3% in 1994. She explained that inflation soon subsided in the following months, noting that, according to an analysis of the Saudi economy, housing rent is the largest factor in the housing sector, accounting for about 15.6%, and pointing out that its impact on the inflation rate is significant compared to the impact of gradual increases in energy prices on inflation. Al-Thumairi predicted that domestic inflationary pressures would continue throughout 2016 and that estimates indicate the average annual inflation rate will reach 4.2% by the end of this year.
