Housing prices in Turkey

Over the past months increasing rumors have circulated, as well as reports, about the worrying state of the housing industry. According to these rumors, too many houses were constructed over the past two years, when the Turkish economy was growing at “Asian Tiger” rates, although now real estate developers will have difficulty selling off their stocks. Unfortunately, there are no direct statistics informing us about supply and demand conditions in the Turkish housing market, but the evolution of housing prices can implicitly give useful information about these conditions. The Central Bank of Turkey has been publishing a monthly index of housing prices since January 2010. One cannot say that this new index has received the interest it deserves, either among newspaper editors or columnists, including myself. This data is collected in 73 provinces through the bank's expertise in the valuation of properties as subjects of housing loans. The index is available not just at the national level but also regionally, in relation to 26 regions. Different regional patterns observed in housing prices allow us to form views about the state of the economy in regions that can differ from the nationwide economic conjuncture for various reasons. Booming prices can be considered a signal of good economic health, while price moderation can give an indication to the contrary. From January 2010 to July 2012 -- the most recent statistics, released a few weeks ago -- the housing price index (HPI) increased by almost 28 percent. We can compare this increase with both the change in the Consumer Price Index (CPI) and Producer Price Index (PPI) in order to get an idea about the real price increase in housing. Within two-and-a-half years, the CPI increased by 17 percent and the PPI by 22 percent. One can observe that a real price increase occurred in housing, since the HPI rose more than CPI as well as PPI. The substantial gap between CPI and HPI should also be noted. This gap can be considered evidence of strong demand in housing. Moreover, we do not observe any deceleration in HPI: From July 2010 to July 2011, HPI increased by 11 percent, and by almost the same rate from July 2011 to July 2012. Certainly these observations do not permit us to conclude that there are no selling problems in the housing market, but we can assert, with some caution of course, that there are no signs of recession. Having said this, it should be emphasized that the state of the housing market differs a lot from one region to the next, at least regarding the speed of the increase in these prices. Let's consider first the three big cities: İstanbul, Ankara and İzmir. Housing price indexes for İstanbul and İzmir are slightly higher than nationwide (127 and 126, respectively, against 124 for the national index). On the other hand, the Ankara index reached only 120 in July. It is interesting to observe that the Ankara index detached from the two others only in the last months. This could be the signal of a housing recession in the capital. I do not know if your curiosity runs along the same lines, but I should confess that when I discovered the regional figures I looked first at southeast Anatolia. The Gaziantep-Kilis-Adıyaman region is the champion in housing inflation, with HPI reaching 157. Diyarbakır-Şanlıurfa follows with 144. As for Batman-Mardin-Siirt-Şırnak, the HPI, at 125, is perfectly in line with the countrywide index. However, Van-Bitlis-Hakkari-Muş has by far the lowest HPI with 104. One can say that housing prices have almost stagnated during the last two-and-a-half years in this region. How to explain these huge differences? Terrorism and armed clashes ravaging the Southeast are not very helpful as an explanation since they are widely spread over the whole region, albeit they might be more intense in Van-Hakkari. Another possible explanation could be the differentiated economic development in the Southeast. Indeed, we know that in Gaziantep as well as in Diyarbakır-Şanlıurfa employment has increased remarkably in recent years, while in the Van-Hakkari region we have witnessed contrary changes (see the research note of the Bahçeşehir University Center for Economic and Social Research [BETAM] titled “Regional Unemployment”). These observations can be considered evidence of highly differentiated economic development in the Southeast, and this differentiation might explain the highly uneven evolution of housing prices in this region. We have the habit in Turkey of considering the Southeast a homogenous entity where poverty is widely spread. It might be time to reconsider these prejudgments, at least for some parts of this region.