How Türkiye is handling the rental housing crisis under the effects of the large number of refugees

Written by Prof. Ali Türel, EECFA Türkiye

Türkiye’s high inflation (79.6% in July 2022 y-o-y), stemming from the Turkish lira’s continued devaluation and the economic consequences of Russia’s invasion of Ukraine, along with soaring energy prices are impacting construction. There is also a rental housing shortage aggravated by the 3,920 million refugees the country is hosting. To counterbalance the negative trends, in addition to the rent freeze law enacted in June, the Turkish Government has announced a big social housing project starting from mid-September.

Ankara, Türkiye. Photo by Ekrem Osmanoglu unsplash.com

Economy and housing market

The economy of Türkiye is facing new problems as the severity of the pandemic is easing. The unparalleled FX volatility since Q4 2021 has led to high inflation. The war between Russia and Ukraine has also contributed to the rise in inflation due to increased energy prices, affecting construction activities as well as the production of certain industrial and agricultural goods.

In June 2022, construction cost rose by 105,73% and residential construction cost by 100,87% yearly. The rates of change in Consumer Price and Domestic Producer Price Indices were by 78,62% and 138,31%, respectively.

Home prices have been growing at higher rates than construction costs. The latest statistics dated May 2022 of the Central Bank of Türkiye reports that the annual growth in the national average of home prices was 145,5%, being 44,63 percentage points above residential construction costs. Such a great difference between home prices and home construction cost may indicate a supply deficit in the housing market due to the high level of housing demand.

Building construction in general, and housing construction in particular, had positives rates of change in 2021; starts grew by about 30%, completions 4%. But occupancy permits issued 627 thousand dwelling units were less than the needed number of housing for 725,7 thousand newly formed households in 2021. In H1 2022, however, housing starts registered an 11% drop, and completions an 8% growth compared with the same 6 months of 2021. The falloff in residential building starts was less, the increase in completions was greater than all buildings’ average. The positive rates of change in completions can be related to big backlogs of buildings under construction fuelled by big rises in home prices.

Building materials

The Index composed by the Association of Construction Material Producers of Türkiye has had a negative trend since September 2021; it fell by 10% from 80,15 in in that month to 72,2 in July 2022 and the yearly rate of change was -9,5%, as shown in the July 2022 publication of the Index.

The Association indicates that because of the decline in demand and orders for their products from national and international markets, together with the appreciated risks and uncertainties about the economic environment, the trend may not be reversed in the short run.

Rental market

The rental property market was hammered most by the shortage of supply and sharp increases in rent prices. As a result, a rent freeze for homes was introduced in June 2022 (in effect until 1 July 2023), limiting rent increases by 25%.

The severity of the crisis in the rental market can also be related to the great number of refugees having accumulated since 2011. As per the UNHCR statistics, in August 2022 Türkiye hosts 3,920 million refugees (3,6 million Syrian and 320,000 from other countries) which may add up to as much as 1 million households. Because most refugees live in rental accommodation in cities, it appears that the additional amount of rental housing couldn’t be delivered in such a short period of time.

Social housing scheme

In mid-September 2022, the Turkish Government is going to launch a large-scale social housing project throughout the country. It will be undertaken by the Housing Development Administration (HDA), which is a central government organization that built about 1.1 million dwelling units during the last 24 years in all of the 81 provinces by developing publicly owned land after being transferred to the HDA. About 86% of homes built by the HDA were sold with mortgage loans of the HDA to moderate-to-lower income households not owning a home. Although the completion of construction will take some time, this project will stimulate demand for construction works and materials.

Construction forecast for Türkiye is available in the latest EECFA Forecast Report up to 2024 which can be purchased on eecfa.com.

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