In recent years, economic policy uncertainty has become a major source of macroeconomic fluctuations and housing market dynamics in emerging economies. Despite the expanding literature on policy uncertainty, limited evidence exists on how uncertainty shocks affect housing supply in Iran, particularly when structural changes and time-varying relationships are taken into account. This study fills this research gap by examining the dynamic effects of economic policy uncertainty shocks on Iran’s housing market and identifying their transmission channels through real, financial, and price-related variables.

A Time-Varying Parameter Factor-Augmented Vector Autoregression (TVP-FAVAR) model is estimated using quarterly data for 1992–2024. The analysis incorporates gross domestic product, consumption, investment, unemployment, inflation, the interest rate, and the number of building permits issued.

The empirical findings indicate that economic policy uncertainty shocks initially increase the interest rate in the short run, but this effect gradually weakens and turns negative over medium-term horizons. The shocks also increase consumption, inflation, unemployment, and gross domestic product, while reducing investment. More importantly, policy uncertainty has a negative and statistically significant impact on the number of building permits issued, and the magnitude of this adverse effect increases over time. These results suggest that policy uncertainty constrains housing supply through higher financing costs, reduced developers’ confidence, and weaker expectations regarding future economic conditions. Accordingly, enhancing policy transparency and stability and facilitating private investment can contribute to greater stability in the housing market.