House a pipe dream: Housing crisis for Turks ahead of elections

Sergan Ulkuj and his wife had to haggle hard with their landlord before they could strike a deal to extend the annual rent of their family home in Istanbul's Bostanci neighborhood.

The monthly rent for the two-bedroom apartment where they live with their seven-year-old son rose 147 percent in a year, from 4,650 Turkish liras to 11,500 liras (about $600) - 25 percent more than the minimum wage in Turkey.

"I recently lost my job and my wife's salary almost only goes to pay the rent," said 41-year-old Sergan, who used to work for an e-commerce company. "We're going to try to live on the legal severance pay I received until I find a new job; I don't know what we would do if I didn't get it," he said, adding that the new tenants are paying about 15,000 liras ($770) for apartments similar to their own.

Turkey is experiencing soaring inflation and economic slowdown

Turkey is experiencing soaring inflation and an economic slowdown that has hit the country particularly hard since last year, ahead of critical presidential and parliamentary elections scheduled for May 14 that will test public support for Turkish President Recep Tayyip Erdogan.

While the ongoing cost-of-living crisis is affecting all areas of life, the cost of housing in particular has far exceeded the already high overall inflation rate. According to the Turkish Central Bank, real estate prices across the country recorded (PDF) a year-on-year increase of 141.5 percent in Turkish liras in February. Real estate prices rose about 75 percent in U.S. dollars over the same period.

The huge rise in real estate prices comes despite a continued slump in property sales - the number of sales fell 21.4 percent in March compared to the same period a year earlier, according to the Turkish Statistical Institute.

The cost of renting property across Turkey also rose 157 percent year-on-year in March, according to a report by the Center for Economic and Social Research (BETAM) at Bahçeşehir University in Istanbul.

The government takes measures ahead of elections

The government is trying its best to ease the housing crisis before the elections. In June 2022, rent increases were capped at 25 percent for people who had lived in the same apartment for less than five years. The initiative is in place for one year until July.

The Ulcuju family has lived in their apartment for more than five years, which legally entitles their landlord to charge rent at the current market rate, even if it means increasing rent by more than 25 percent.

Ahead of the upcoming elections, Erdogan is also trying to attract more working- and middle-class Turks to the real estate market. Two ambitious building projects were announced, specifically for those without property, and the president also promised to build hundreds of thousands of new homes across the country by 2028. Erdogan said in an election address in the southern city of Antalya on Tuesday that his government would announce new housing projects and additional regulations to protect citizens.

Turks suffer from high housing prices

Meanwhile, Turks are feeling the pinch.

Bora Cikikcioglu, an engineer of 10 years, said his rent has risen from 4,000 liras in his previous apartment a year ago to 10,000 liras (about $514) in the apartment he lives in now. He added that people who live longer in the same apartment often face more lenient rent increases.

The surge in home sales to foreign buyers that have swamped the Turkish real estate market over the past few years is also affecting price increases.

The Turkish Central Bank has been cutting interest rates... as inflation rises rapidly. To protect savings in Turkish lira from inflation, demand for housing has increased," Gürsel said, adding that a significant drop in mortgage rates in 2020 also boosted demand for real estate.

Experts said this has made people invest in real estate as the Turkish lira's retention is likely to lead to its further depreciation due to the ongoing currency devaluation and inflation.

Meanwhile, the more people invest in real estate, the more house prices rise.

Seyfettin Gursel, professor of economics and director of BETAM, told Al Jazeera that the roots of Turkey's current housing problems lie in the 2018 crisis, which led to a huge drop in prices at a time when the country had a huge backlog of unsold housing.

"New housing projects were significantly curtailed at the time [due to the crisis]. The construction industry has lost a third of its employment in two years. As a result, the supply of housing for sale eventually decreased," he said.

The Erdogan government has violated international orthodoxy on combating high inflation. Instead of raising interest rates, as central banks in much of the world have been doing for the past few years to reduce inflation by encouraging saving instead of spending, he cut rates.

The Turkish president, however, has repeatedly said that he believes inflation itself is caused by high interest rates and has called himself "the enemy of interest rates." He repeated last month that interest rates will fall as long as he is in power and that inflation will fall with them.

The central bank has cut its key rate from 19 percent to 8.5 percent from the end of 2021, ignoring rising inflation.

Experts said this has made people invest in real estate, as keeping the Turkish lira will likely lead to its further depreciation due to the ongoing currency devaluation and inflation.

In the meantime, the more people invest in real estate, the more house prices rise.

The Turkish Central Bank has been cutting interest rates... as inflation rises rapidly. To protect Turkish lira savings from inflation, demand for housing has increased," Gürsel said, adding that the significant reduction in mortgage rates in 2020 has also boosted demand for real estate.

The surge in home sales to foreign buyers that have swamped the Turkish real estate market over the past few years is also influencing price increases.

They have been attracted to Turkey by the falling lira, as well as the relatively easy and quick acquisition of Turkish citizenship through the purchase of a home.

According to Seyfettin Gürsel, the increase in home sales to foreign nationals has led to "huge price increases," especially in tourist regions such as the southern provinces of Antalya and Mersin.

In BETAM's latest report on house prices in March, the annual growth rate was