Mahfi Eğilmez on Housing: How Did Turkey’s Property Prices Get Out of Hand?
konut balonu
In a recent blog post titled “How Did House Prices Get to These Levels?”, economist and former Treasury Under-Secretary Mahfi Eğilmez examines the extraordinary rise in Turkey’s housing prices, tracing the roots of the surge to policy mistakes in 2021.
Why Did Prices Soar?
Eğilmez argues that a combination of low interest rates, high inflation, limited housing supply and strong population growth, amplified by migration inflows, turned housing into an attractive investment — not just for living but for speculation.
With inflation eroding savings and real interest rates turning negative, investors shifted heavily into real estate as a hedge. Eğilmez notes that many households began buying second or even third properties, aiming for both rental income and capital gains.
The 2021 Policy Mistake
He highlights the final quarter of 2021, when the Central Bank of Türkiye lowered policy rates despite accelerating inflation. This, he says, was a critical error that unleashed rapid price and currency increases, turning real interest rates sharply negative and pushing investors toward property.
With supply already tight, this demand shock drove prices sharply higher. Eğilmez concludes:
“What was created in two years has not been corrected in more than two years.”
Recent Data: Still Rising but Showing Fatigue
Turkey’s Residential Property Price Index (RPPI) shows that nominal house prices rose by about 31% year-on-year in August 2025, but real prices fell slightly, reflecting the impact of slower demand and high inflation.
Home sales, meanwhile, have shown resilience — rising by more than 5% year-on-year in the first quarter of 2025 and by over 20% in 2024. Mortgage-backed transactions also climbed strongly, reflecting households’ continued preference for property investment.
Despite this apparent recovery, analysts note that the correction in real terms is ongoing, as affordability remains strained and construction costs stay high.
What Eğilmez Concludes
According to Eğilmez, the sharp rise in housing prices was not a natural market fluctuation but the direct outcome of policy distortion. Artificially low interest rates combined with soaring inflation made housing the default investment vehicle.
More than two years later, the fundamentals that fueled the boom — limited supply, high inflation, and negative real rates — have yet to normalize. As a result, prices remain sticky at elevated levels, and the market still lacks balance.
Key Takeaways
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The 2021 rate cuts amid rising inflation triggered a property-price explosion.
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Nominal prices continue to rise around 30%, while real growth is flat or negative.
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Sales volumes are increasing, but largely driven by investment demand.
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Without restoring real interest rates and addressing supply shortages, the imbalance will persist.
