American Public University
In this paper, I will discuss the real estate industry development and inefficient use of financial resources in Turkey. Also, the real estate sector causes some damages in nature and misuse of a natural resource. The biggest problem is the short term vision planning businesses have been granted some advantages by the Turkish governments from 1984 to 2016 and the financial markets in Turkey has not been well-developed, and it causes inefficient use of funds. One of the industries using financial resources inefficiently is the real estate business (Finkel & Ersoy, 2016).
The population has started increasing rapidly after the 1980s in Turkey, and nowadays the population has reached almost 80 million people. The increasing population has increased the demand for houses, and especially migration from the rural areas to the urban area, Istanbul and around, caused a very structural change in the real estate industry. In the 1980s, the first real estate agents made high profits in an emerging market. The high profit in this industry attracted many others.
The Turkish government, for political reasons, granted some advantages to the real estate businesspeople in Turkey. The real estate business have created a large amount of rant in Turkey, and especially in big cities, and these rant has been the main driving force for many of politicians, businessmen, and bureaucrats through corruptions, bribing, and some other illegal ways, or political means of transforming illegality to legality. The party in power in Turkey now, the AK Party, has been on the power from 2002 to the present, and the AK Party could manage to stay in power for that long through getting financial power generated in the real estate industry.
The story is simple in the real estate business. The migration from the rural areas to the big cities increased the demand for houses, and the prices of houses have started growing logarithmically from 1980 to 2016. After 2008, the government has forced the central bank to reduce the interest rate, and that happened. Also, the financial system provided financial assistance with some advantages to the construction and real estate companies and the people who are willing to purchase a house. Consequently, the demand for houses has reached a very high level in Turkey.
Graph 1: Housing Market in Turkey from 1980 to 2016
The figure 1 explains how housing market developed from 1980 to 2016 in Turkey. As explained above, the real estate market business has been supported by providing them credits and the demand have been stimulated by providing easy access loans to the house buyers. Subsequently, the demand for homes increased rapidly, and the house building companies could increase their productions. However, in time, because the construction industry has a natural limit due to the limited land and natural resources, the supply curve has been steeper and steeper. In the long term, it will be a completely vertical line. As can be seen in the graph 1, the housing industry caused a rapid increase in the house prices. Because of artificially supported demand and supply, the bubble in the housing market has not burst yet, and this price increase has been transformed into a political power (Karakaya, 2016).
Nowadays, the domestic demand for houses is not so high because the economy cannot generate enough income for individuals and that situation decreases demand for houses. For solving this problem of reducing demand for homes, the Turkish government is spending effort for stimulating demand of wealth Arabic people from Saudi Arabia, UAE, Kuwait, and some other countries. Also, for developing new financial tools for the housing market, the government has prepared a new legislation enabling people for purchasing a house partly. In another word, people would be able to buy one part of the house, and they will be able to receive the rent partially. Just, they will spend money for the homes they will never use. These efforts spent by the Turkish government will enlarge the bubble in the housing market in Turkey (Türel & Koç, 2014).
The housing market fact in Turkey is causing the following adverse influences on the economic development in Turkey:
1- Inefficient use of financial resources: The housing market is using almost more than 50% of all financial resources in Turkey, and the other industries are having difficulty to access to financial resources for enhancing the investments. Subsequently, the financial system is not working efficiently for distributing the credits to the relatively more productive industries. The construction industry might be productive in the short run; however, in the long term, the housing industry is not productive at all.
2-Increasing income inequality: Only fewer people can involve in housing industry because it requires a high amount of capital. Therefore, the profits of housing industry go to fewer people, and that increases the income inequality. Also, many people are using mortgage credits, and they pay a high amount of interest to banks, and this is a part of increasing income inequality.
3-Turkish Economy is not developing its manufacturing industry: Because the building sector is using most of the financial resources, the construction sector which is the core of the economy cannot grow itself. This is a crowding-out influence on the manufacturing industry. In the long term, the weak production in Turkey might cause very big economic problems.
4-Human resources are not being developed well: The housing industry does not need highly qualified workers. Mostly unqualified workers are hired. Therefore, the demand for skilled workers decreases and that creates an adverse influence on the development of human resources.
The 5-high level of damages to nature and natural resources: The increasing demand for houses increases the demand for the construction industry inputs. These data are extracted from nature, and this situation increases the damage to the nature and the natural resources in Turkey (Hillebrandt, 1974).
Consequently, the highly developed housing market in Turkey has played an essential role in the Turkish policy, and the rapid economic growth of the Turkish economy in the last two decades. However, this is not a sustainable development, and the Turkish economy has an enormous bubble in the housing industry.
References
Finkel, I. & Ersoy, E. (2016). Danger Signs in the World's Top Housing Market. Bloomberg.com. Retrieved 24 July 2016, from http://www.bloomberg.com/news/articles/2016-04-25/danger-signs-in-world-s-top-housing-market-as-developers-falter
Hillebrandt, P. (1974). Economic theory and the construction industry. [London]: Macmillan [Distributed in the U.S. by Halsted Press, New York].
Karakaya, K. (2016). Is Turkey headed for a housing bubble?. Al-Monitor. Retrieved 24 July 2016, from http://www.al-monitor.com/pulse/originals/2016/04/turkey-housing-sector-continues-attract-foreing-investors.html
Türel, A. & Koç, H. (2014). Housing production under less-regulated market conditions in Turkey. Journal Of Housing And The Built Environment, 30(1), 53-68. http://dx.doi.org/10.1007/s10901-014-9393-6
