Measuring homeownership affordability in emergent market context: an exploratory analysis for Turkey

Abstract

Purpose This paper aims to offer an extensive empirical case study analysis by investigating housing affordability in Turkey as a whole, and in Istanbul, Ankara and Izmir over the period of 2006 and 2017 and its sub-periods. Design/methodology/approach This paper develops a theoretically informed model to assess affordability using complementary methodologies in quantitative analysis. This study seeks to help outline the nature of the problem in aggregate level and in the cities; it also seeks to offer lessons about how to address measurement and modelling challenges in emergent market contexts by constructing aggregate-/city-level housing cost-to-income (HCI) ratio, adjusted HCI (AHCI) ratio, housing affordability index (HAI) and effective HAI sensitive to multiple calculation methodologies and alternative data set involving income distribution and poverty tranches. Findings HCI, AHCI, HAI and EHAI models generally suggest the parallel results: housing is not affordable in Turkey and in Istanbul, Ankara and Izmir except for the highest income groups. The evidence implies that besides macroeconomic instabilities, distorted interest rates and short average mortgage maturity, poverty and unequal income/wealth distributions are the main reasons of the Turkish housing affordability crisis specifically heightened in metropolitan areas such as in Istanbul. Research limitations/implications The evidence provides an insight on housing affordability problems in Turkey. However, small sample size and short observation period create a limit for generalisation of the findings. Further analysis would be required to illustrate how housing affordability changes in different cities of Turkey in a longer period. Practical implications By using empirical approaches, this paper helps to understand how serious housing affordability problems of Turkey in aggregate and urban levels. This evidence helps to explain declining ownership ratio in low-income groups and in urban areas. Reliable explanations on existing housing crisis of Turkey also help to develop affordable housing policies. Social implications Declining housing affordability and homeownership ratio may translate as the rising housing inequality and insecurity among Turkish households. Moreover, better affordability values of higher income groups suggest that existing inequality, economic/social segmentation, and hence social tension between high and low income groups, may further increase. In this respect, the authors suggest socially important policies such as reducing income/wealth inequalities and increasing affordable housing supply. Originality/value This study offers a detailed empirical case study analysis that can be used as an exemplar of how to overcome data constraints in other evolving housing market contexts. This study sets out an approach overcoming the challenges of measurement. This study also combines existing methodological approaches with the modified variables to provide a more realistic aggregate-/urban-level housing affordability picture. The authors calculated some parts of housing affordability ratio and index series using discretionary income, minimum wage and effective minimum wage to show the variations of different measurement approaches. Some constructed series are also sensitive to income distribution and poverty thresholds. Collectively, this empirical approach, developed by using emerging market data, provides a contribution to the literature.

Housing affordability: an econometric framing for policy discussions

“…Accelerated during the post-Global Financial Crisis period, the global urban housing affordability crisis has had a new stage in developed countries since the Covid-19 pandemic. Developing countries have also long suffered from affordability problems, although it has not received sufficient attention in the literature (Coskun, 2021). Today about one-third of the urban population in the global South lives in informal settlements.…”

“…By modifying the following baseline HAI in equation (4), we constructed EHAI in equation (5) in our models (Mengjie et al , 2008; Duan, 2011; Bourassa and Haurin, 2017; NAR, 2018; Coskun, 2021). where Y is the median income, AHP is the average house price, LTV is the loan to value ratio (used as the decimal value) and i is the annual mortgage rates.…”

Is there a bubbly euphoria in the Turkish housing market?

“…In addition to declining income level, its fairly unequal distributed nature also implies an acute housing affordability crisis in Turkey, rather than a strong fundamental for the house price inflation. Coskun (2020) provides evidence that beside macroeconomic instabilities, distorted interest rates and short average mortgage maturity, poverty and unequal income/wealth distributions are the main reasons of the Turkish housing affordability crisis specifically heightened in the metropolitan areas such as in Istanbul.…”

“…But more interestingly, housing ownership ratio for lower income groups, based on below 60% of the median income criterion, has significantly declined from 58.8 to 52.1% during the same period. Therefore, as an interesting dimension of the recent housing boom-bust period in Turkey, significantly rising house prices/sales and demand/supply side speculations eventually resulted in a housing affordability crisis specifically in lower income groups (see, Coskun, 2020).…”

Analisis Keterjangkauan Properti Residensial Pada Wilayah Jawa-Bali

“…Selain menggunakan rasio HTP, perhitungan lain untuk menggambarkan keterjangkauan finansial dalam mengakses properti residensial adalah dengan indeks keterjangkauan (affordability index). Sebagai perbandingan, di Australia perhitungan indeks keterjangkauan cicilan yang digunakan oleh 3 lembaga: Real Estate Institute of Australia Housing Affordability index, The BIS Shrapnel Home Loan Affordability Index dan The Commonwealth Bank of Australia housing affordability index (CBA)-HIA mengasumsikan pembayaran cicilan untuk kredit dengan tenor 25 tahun, dengan nilai agunan 75%-80% dari harga rumah median adalah sama dengan 30% pendapatan bulanan rumah tangga (Coskun 2020). Penelitian Coskun (2020) mengukur dan memodelkan keterjangkauan pada pasar perumahan di negara berkembang dengan pendekatan agregat dan beberapa kota dengan metode housing cost to income ratio (HCI), adjustment HCI (AHCI), housing affordability index (HAI) dan effective HAI (EHAI).…”