Of fake housing bubbles and Syrian refugees

I am often asked about the housing prices in Turkey lately. My questioners often want to confirm their sense that the housing bubble is going to burst, that a year or two down the line and they’ll be able to say “I told you so.” Have a look at the table below. It shows the increase in housing prices across Turkey between January 2010 and May 2014. The data was collected and released by TURKSTAT. So unless there is something terribly wrong with my eyes, there is no housing bubble in the data. I do, however, see Syrian refugees having a considerable impact. Let me elaborate.

Housing prices have increased around 60 percent between January 2010 and May 2014, but the increase is due to a few, clustered spikes on the map. Those are in the provinces of Gaziantep, Kilis and Adıyaman, with a 125 percent surge in housing prices in the last 5 years. All three provinces are on the Syrian border. Kilis has a population of around 80,000 and has so far taken in a refugee population of 125,000. In Gaziantep, the refugee-to-native ratio is still at a more modest four-to-one. Two factors are important here – the number and wealth of the refugees. In places where newcomers are relatively well off, housing prices increase more. So if you look for an impact of Syrian refugees in Turkey, it is now also good to have a look at the prices of houses.     


Secondly, if you look at housing prices in 2014, there is an annual 20 percent increase. That might seem high, but remember that this is a country with a 10 percent inflation rate. When compared with the Economist’s housing price index in 20-something countries, it hardly looks like bubble trouble to me.

Thirdly, however, there is a regulatory restraint on loan growth nowadays. Turkey has had a period of 10 percent GDP growth, resulting in a 10 percent current account deficit, both figures being historical records. Then, a policy decision was made to control rapid loan growth and its effects started to be visible this year. Take a look at the figures. The rate of growth is declining to 3 percent and the current account deficit is around 7 percent. So, an annual 20 percent housing price increase with this regulatory setting can be problematic.

Does that threaten the performance of Turkey’s economy? I don’t think so. There may be some casualties, but the construction sector is here to stay. Turkey needs to continue its drive for urban renewal. The country needs to build 650,000 dwellings each year, and 7 million dwellings are awaiting examination for the purposes of urban transformation. This number equals the number of all of the houses in the Netherlands. Some construction projects may go bust, but the sector as a whole still has a lot of work to do.

Now is the time to use urban renewal projects as an industrial policy tool. It is time to change building standards the way Denmark did in the 1980s. Properly enforced safety and quality standards could make sure people invest properly into their homes. And perhaps most importantly, energy-efficiency rules could save Turkey a fortune in the coming years. Turkey’s construction sector is not going anywhere, but we need to hold it to a higher standard to meet the country’s goals as a whole.