“We haven’t found a home in Istanbul. It’s terribly expensive. We’ve moved in with my parents.” 

So says Hafize Gaye Erkan, the new head of Turkey’s central bank who, in an interview with Turkish media, slammed Istanbul’s skyrocketing rent prices.

“Is it possible that Istanbul has got more expensive than Manhattan?” she asked.

Many Turks have taken to social media, seemingly incredulous that even the 44-year-old governor, who previously worked at financial firms including Goldman Sachs and First Republic Bank, cannot afford her rent.

“Even when the head of the central bank cannot afford rent, what can public servants or minimum wage earners do?” many have asked.

Unfortunately, it’s not a new issue: Sema Dumanli, associate professor at Turkey’s top-ranking Bogazici University, highlighted the problem more than a year ago by sharing the rental price of a flat in Istanbul (€1,094) and her payslip (€897) on social media. 

The rent was 20% higher than her monthly net salary, with Dumanli decrying that academics’ salaries are not enough for basic life.

At the time of her post in October 2022, annual house price inflation was 205%, according to the Central Bank of the Republic of Turkey (CBRT).

Meanwhile, official rent inflation, referring to the year-on-year price change of housing rentals, stood at 41%, according to Turkey’s official statistical office (TurkStat).

However, Bahçeşehir University’s Center for Economic and Social Research (BETAM) put the annual increase at 146%, based on Turkey’s most popular classified ads.

In November 2023, the monthly average rent per square metre was 128.4 Turkish lira (€4.20) in Turkey and 166.7 lira in Istanbul specifically, according to BETAM. That meant the rent for a 70 square metre house was €378, while the monthly net minimum wage was €369. The rent price does not include utility bills.

In Turkey, the average net salary of a teacher is around €847, while an average police officer takes home about €938. 

In January 2024, the monthly net minimum wage rose to €520. The salaries of public servants also increased by around 50%. However, rents are expected to keep increasing due to inflation too.

An Istanbul Planning Agency (IPA) report from the Istanbul Metropolitan Municipality indicates that the monthly net minimum wage in Istanbul has been less than 100% of the average rent for the past 2.5 years, as of September 2023. This implies that those earning the minimum wage cannot afford their rents.

All these figures combined show the extent of the grave cost of living crisis hovering over Turkey.

How did house and rental prices skyrocket so quickly?

“Turkey has no choice but to return to a rational basis,” the country’s Finance Minister Mehmet Şimşek said at a handover ceremony with his predecessor Nureddin Nebati in early June. 

“Transparency, consistency, predictability and compliance with international norms will be our basic principles in achieving the goal of raising social welfare”, he added, signalling an intention to move away from the government’s previous volatile strategies.

Put simply, Turkey’s economic data suggests house and rental prices have skyrocketed as a result of the government’s previous “irrational” policies, as described by Şimşek, who previously served as Finance Minister and Deputy Prime Minister between 2009 and 2018.

Turkey’s “new economic model”

Part of these policies came in under Turkey’s “new economic model” in September 2021, which prioritised growth, investment and exports. 

President Recep Tayyip Erdoğan had long argued that lowering interest rates helped fight inflation, in direct contrast to mainstream expert views.

During the implementation of this “new economic model”, annual consumer inflation soared to its highest level (86% in October 2022) since Erdoğan first took office.

The annual house price inflation rate, which hadn’t exceeded 35% in the 10 years up to September 2021, exploded to 189% country-wide and 212% in Istanbul in just one year under the new model, according to figures from the CBRT.

While the central bank cut its key interest rate from around 19% in 2021 to 8.5% earlier this year, under Erdoğan’s previous policy of lowering interest rates, the bank has changed course following the appointments of Şimşek and Erkan, hiking its main interest rate from 8.5% to 42.5% in just a few months.

Rent inflation and general consumer inflation

The annual general consumer inflation also skyrocketed under the “new economic model”. 

Rent prices are supposed to increase in line with inflation. However, the Turkish government capped rent increases at 25% in July 2022, which has now been extended to July 2024 to address the growing anger following the country’s elections in May last year.

The difference between the rent and general consumer inflation rates has significantly increased. In October 2022, annual consumer inflation was 86% whereas rent inflation was 41%.

25% cap on rent increase didn’t work

However, independent research centre BETAM’s report indicated that the annual rent inflation was 159% in October 2022. The annual general consumer inflation rate was also found to be 185 % by the independent Inflation Research Group (ENAG).

In 2022, a survey by MetroPoll showed that a huge majority (82%) of people did not believe TurkStat’s inflation rate in 2022.

As of November 2023, the annual rent inflation reached 106% according to the TurkStat. This clearly shows a 25% cap on rent increases have not been working.

Violent disputes between landlords and tenants

The substantial gap between this 25% cap, official annual inflation and rent prices in the market has also caused violent landlord-tenant disputes. At least 11 people were killed and around 50 people have been injured in these clashes, while hundreds of people have been arrested over the disputes. 

How have flat prices changed in the past five years?

CBRT releases house unit price data in Turkey, which it calculates by dividing the value of a property by its gross area of use. Dwelling prices indicated in valuation reports prepared at the time of approval of individual housing loans are used as a proxy for price.

When we calculate the price of a flat – 96 square metres in our simulation – a dramatic increase even is striking even in euros.

The price of a flat in Turkey rose, on average, from €40,698 to €98,042 between October 2018 and 2023: a 141% increase.

In Istanbul, it climbed from €72,866 to €144,886 in this period, making it a 99% increase.

In the same period, the Euro/Turkish Lira exchange rate jumped from 6,75 to 29,41. 

Minimum wage vs house prices

In Turkey, comparing minimum wage and house prices is also relevant as Turkey has become a country of minimum wage earners. In 2022, the proportion of employees earning less than 120% of the minimum was 58.4%, according to the Confederation of Progressive Trade Unions of Turkey (DİSK-AR).

When monthly minimum wage and house unit prices in Istanbul and Turkey were indexed to 100 in January 2018, the chart shows how each index changed over almost six years.

The minimum wage index went over house prices until mid-2021. While the nominal minimum wage considerably rose under the “new economic model”, the house price index both in Turkey and Istanbul exceeded the minimum wage index. The gap has been on the rise.

Earthquake and house sales to foreigners

Analysts also suggest that last year’s devastating earthquake and house sales to foreigners may have contributed to the increase in rents and house prices.

The two earthquakes hit Turkey’s southeastern provinces in February. Thousands had to move to other cities.

The number of houses bought by foreigners has dramatically increased over the past decade. Buying a property in Turkey comes with the eligibility to apply for Turkish citizenship if it costs more than $400,000 (€364,292). That price was $250,000 (€227,721) until 2022.

In 2021, foreigners bought 3.9% of the houses sold in Turkey, according to TurkStat.

Between 2013 and mid-2022, the total number of properties bought by foreigners exceeded 310,000.

Turkey is an outlier in house price inflation

According to Eurostat, the EU’s official statistical office, Turkey is an outlier in nominal house price inflation.

Between the second quarters of 2022 and 2023, the house prices in Turkey almost doubled (95.9%), whereas it fell 1.1% in the EU.

Turkey is followed by Croatia and Bulgaria where the rise was 13.7% and 10.7%, respectively.

In eight EU countries and the UK, house prices fell in this period.

Germany recorded the highest decline by 9.9%, followed by Denmark (7.6%) and Sweden (6.8%). House prices decreased by 3.5% in the UK.

House ownership is on the decline

Looking at the proportion of people owning their own home, there has been a gradual decline in the last 15 years.

In 2014, 61.1% of households owned their dwelling, according to TurkStat. This proportion has been falling every year since then, hitting 56.7% in 2022.

By contrast, the proportion of tenants rose from 22.1% to 27.2% in this period.