The construction sector has been one of the industries that the current government has supported the most over the past 20 years. The housing market has direct and indirect connections with many aspects of the economy, and a contraction in this sector can affect the entire economy. Additionally, as a significant component of wealth, it is closely monitored by economists and central banks.

During the pandemic period, the reduction in credit interest rates and later the government’s suppression of foreign exchange rates led to an extraordinary increase in housing prices until the beginning of this year. Looking at it globally, Turkey is among the countries with the highest increases. Although the rate of increase has relatively slowed down recently due to tightening in credit, housing prices continue to rise.

For those interested in the housing sector and those looking to become homeowners with their savings, the most important question in recent times is whether prices will drop.

When analyzing the housing market, it should be considered from two perspectives. Firstly, housing is a necessity, and classical market factors also influence price formation in this market. Secondly, housing can also be an investment asset, and in this case, factors influencing investment preferences come into play.

The most important determinant of demand for housing as an investment asset is interest rates and the yields of alternative investment instruments. Increases in interest rates naturally raise the cost of buying housing as an investment and reduce demand. However, in Turkey, the ratio of mortgage-based housing sales, i.e., the rate of purchasing homes with credit, is around the 20% range, and within this ratio, there are also loans with very low interest rates.

As a necessity, demand for housing may be delayed according to economic conditions, but it is unlikely to disappear. The most important factor affecting demand is population along with price. Turkey’s population, especially with the influx of young migrants from abroad, is rapidly increasing. This population needs housing in some form, and when demand for rental housing increases, rental prices, and consequently, housing prices will be affected.

Alongside demand, there is a constant increase in construction and labor costs on the supply side. These cost increases naturally reflect on the prices of new housing units. Additionally, second-hand housing prices are directly influenced by new housing prices and have a cascading effect on the entire market.

Addressing the increasingly critical housing problem requires multi-faceted policies. However, it should also be remembered that every intervention in markets can lead to new problems.