Introduction 
Urban development and housing construction are critical drivers of economic growth and social sustainability, particularly in megacities like Tehran. However, complex municipal fees and tariffs significantly influence the financial mechanisms surrounding these processes, such as building permit fees and direct and indirect taxes. While these costs are intended to offset public expenses, the lack of transparency and coordination in their calculation and allocation imposes financial strain on developers and creates inequities in urban investments.  
This research examines the share of municipal fees and taxes in housing construction costs in Tehran, analyzing their impacts on investment dynamics. The study aims to optimize municipal revenue policies and fee management for sustainable and equitable urban development.
The theoretical framework is built on municipal revenue structures, emphasizing various fees and taxes. Unlike many countries, Iranian municipalities, including Tehran, rely heavily on activity-based fees—such as construction fees—rather than recurrent taxes like property taxes. This dependency results in less financial sustainability and uneven urban investment. The study aims to establish a robust policy framework for urban financial management by referencing international benchmarks such as development charges and material taxation.
Materials and Methods
The research was conducted in three phases. In the first phase, physical indices such as land area, number of floors, and building density were analyzed to estimate construction investments. A dataset of 4,500 building permit files from Tehran was evaluated based on urban development plans and various metrics.In the second phase, secondary data and economic analyses were used to calculate construction costs, including national and local taxes and quality control fees. The costs comprised materials, labor, machinery, and taxes such as direct and indirect taxes, municipal fees, and professional control tariffs. Unlike developed countries where fees are applied post-construction, Tehran’s fees are predominantly levied during construction, affecting cost dynamics significantly.
The third phase analyzed the contribution of municipal fees to construction costs, initial investment, and final sale prices. Financial metrics such as per-square-meter construction costs, initial property value, and final sale prices across Tehran’s 22 districts were calculated and compared. Key indicators included: 1. The share of municipal fees in construction costs, encompassing building permit and service fees. 2. The ratio of fees to initial property investments under scenarios aligned with or exceeding urban development plans. 3. The contribution of municipal fees to final housing sales.
All calculations were conducted assuming zero inflation and static timeframes, providing a foundation for evaluating fee policies and forecasting their impacts on investment and urban growth.
Findings
This study analyzed the financial impact of municipal fees on housing construction costs, property investments, and final apartment sales in Tehran. Data from 4,500 building permit applications in 2023 revealed that the average initial property value in Tehran was below 500 billion rials, with the highest values in District 1 (2,180 billion rials) and the lowest in District 10 (74 billion rials). Average construction costs ranged from 164 to 464 million rials per square meter, while the average apartment sale price was estimated at 970 million rials.  
The findings showed that construction materials accounted for 58.4% of costs, labor and machinery 26.2%, direct and indirect taxes 6.56%, municipal fees 4.34%, and professional control tariffs 3.35%. Municipal fees varied between 1.21% and 11.87% of construction costs across districts, averaging 4.8% of initial property values under standard urban plans and 2.1% when exceeding density limits. These results highlight the significant role of fees in construction costs and emphasize the need for policy reforms.
Conclusion
The output of this research can have broad applications in two areas: 1-quantity and calculation and 2-proposals of urban management governance.
1- If the current situation remains constant and approximately two-thirds of Tehran Municipality’s revenues depend on income from issuing building permits, in the two scenarios of selling excess density of the detailed plan and issuing permits precisely according to the detailed plan, the amount of investment required in the real estate investment sector (primary institution) is 1.7 times, and the construction cost (secondary institution) is almost double. In both scenarios, the income of the urban development sector is constant, but the income of the government and the engineering system has grown significantly. Also, the second scenario will bring a much higher number of residential units and residential infrastructure and an intensification of the city’s density load by 20 percent.
2-The findings reveal a heavy reliance of Tehran’s municipal revenue structure on unstable sources, such as income from building permits. This reliance, coupled with substantial increases in construction costs and limited investment returns, places additional financial burdens on housing developers, potentially reducing their motivation.
Currently, municipal fees account for 12% of housing construction costs in Tehran, exceeding global averages. In districts where additional density is granted, the fee contribution is relatively negligible, necessitating reforms to enhance fee determination and allocation equity. Adjusting tariffs associated with increased density to cover at least 2.5% of property value, in line with global standards, could enhance municipal revenue sustainability and promote social equity.
The high upfront construction costs—taxes, insurance, and building permit fees—exert significant financial pressure on developers. These costs could be alleviated by shifting some charges to post-construction phases, such as urban service fees or taxes based on rental or sales income.
In terms of construction quality, engineering tariffs require revision. Currently determined solely by building area, these tariffs fail to account for factors such as construction quality, market competitiveness, or locational desirability. Incorporating qualitative indices could improve construction standards and enhance pricing accuracy.
A significant challenge in managing urban fees lies in the lack of transparency in their calculation and allocation. Establishing transparent systems and simulation tools for fee calculation and expenditure tracking could boost public trust and encourage greater social participation.
Policymakers should reconsider the structure of fees and tariffs and develop strategies that reduce financial pressure on developers and enhance fairness and efficiency in urban management. The results of this study provide a scientific basis for optimizing urban policies and directing investments toward sustainable and balanced development across Tehran’s diverse districts.