Inequality fuels Istanbul real estate bubble

A few weeks ago, the governor of the Central Bank of Turkey, Hafize Gaye Erkan, raised a storm after an interview given to the newspaper Hürriyet in which he claimed that it had been impossible for him to find a house in Istanbul and that he had had to move with his mother. “Can Istanbul be more expensive than Manhattan?” she complained. Her words were widely criticized in articles and social networks as a mere public relations exercise, an attempt by the head of Turkey's monetary policy to place herself at the level of ordinary people. Of course, by leaving his job at the American company Marsh McLennan and taking charge of the central bank, Erkan has seen his income greatly reduced: he has gone from earning about 77,000 euros a month to 5,000. But it is still fourteen times more than the minimum wage, which is earned by around 40% of workers in Turkey.

There is no doubt that he was right about one thing: housing prices in Istanbul have gone through the roof. In the last three years, rents have increased by 756% and the purchase price by 651%. The average rent for a 100 square meter home in Istanbul is 17,100 lira, about 535 euros. The figure might seem affordable compared to other European cities, it is equivalent to one and a half salaries of those who earn the minimum wage.

Acquiring a home has also become impossible for many Turks, with prices that, in some central districts of the metropolis, exceed 300,000 euros, and in others, for example, Besiktas and Sariyer, along the Bosphorus Strait, are They are close to 500,000, according to data from the Endeksa portal. It is true that Istanbul is an immense city—it extends one hundred kilometers from end to end—and full of inequalities and contrasts: in other districts the purchase price does not even reach 100,000 euros. It is precisely these inequalities that contribute to the real estate bubble. “Inflation has made the distribution of income even more unequal. There are professionals, merchants, businessmen who are improving their situation, while other workers see their situation worsening day by day, so a part of Turkish society can afford to buy a home,” explains Ahmet Büyükduman, economist and market expert. real estate.

Investment

Faced with the inflation crisis, which began in Turkey in mid-2021, part of those who had savings decided to invest in brick. What's more, there were those who took advantage of the Erdogan Government's heterodox policy of keeping interest rates well below inflation to obtain cheap loans and invest them in the real estate market, and they were precisely people who did not need a home, but rather did as an investment method. The crisis is not a problem of lack of construction. It is true that construction is no longer at the pace of the mid-2010s, when more than 200,000 homes were built per year in Istanbul alone, but in the last three years some 300,000 homes have been built while the population of the Turkish megalopolis has increased by half a million people.

A trip through the city allows you to see what is being built: large steel and glass towers, vertical developments that are advertised as the ultimate in luxury. And a not insignificant part of them remains empty. There is, Büyükduman emphasizes, a great imbalance between what is offered and the needs of a large part of the population: affordable housing. All in all, the bubble seems to be bursting: after three years of setting records, in 2023, home sales fell to their lowest levels in the last decade.

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