Land subsidence, as a slow-onset geological hazard, has affected approximately 56,000 km² of Iran's territory, with rates exceeding 35 cm/year in some areas. The fundamental question of this study is whether the geological risk of subsidence is capitalized into housing prices in Iran, or whether competition from alternative assets (gold and USD) as inflation hedges causes this risk to be neglected in the housing market. The study aims to test the "masking" hypothesis within Iran's inflationary economy.
Methodology: This applied research is descriptive-analytical with a correlational-causal approach. Data were organized in a balanced panel of 31 provinces × 12 years (372 observations). Subsidence rates were extracted from the SubsMap based on InSAR analysis, and their provincial averages were calculated. Gold (3,775 daily records) and USD (4,250 daily records) data were converted to annual averages and included as alternative assets. The analysis employed a combination of panel models (pooled OLS, between, random effects), spatial models (SAR and SEM), three-step mediation analysis, interaction analysis, and bootstrap inference. Because the subsidence rate is time-invariant, the spatial autoregressive (SAR) and spatial error (SEM) models were estimated on the cross-sectional (between-province) variation using province-level averages of the time-varying variables over the sample period.
Results and Findings: Gold and USD, with a correlation of 0.85 with housing prices, are the dominant determinants of Iran's housing market, increasing the R² from 0.670 to 0.842. However, the subsidence coefficient remains positive and significant at the 1% level in all specifications (ranging from 0.1503 in the baseline model with gold and USD to 0.4089 in the Random Effects model without them) and adding gold and USD not only does not weaken it but actually strengthens it. Mediation analysis shows that subsidence has no causal effect on gold or USD prices, and the interaction term of subsidence × gold return is insignificant. These findings confirm the hypotheses of macro dominance and channel independence, while providing mixed support for the market-failure interpretation. The persistently positive and significant subsidence coefficient, which is not weakened by the inclusion of gold and USD, is consistent with both a failure to price geological risk and reverse causality arising from economic activity that simultaneously drives groundwater extraction and housing demand. The results therefore indicate that the Iranian housing market does not capitalize subsidence risk into lower prices—an outcome that remains robust even after controlling for the strongest alternative assets—but do not allow a definitive causal claim of pure market failure.This finding highlights the necessity of mandatory geological information disclosure, integration of hazard maps into land-use regulations, and investment in critical infrastructure resilience.