Housing Bubble in Turkey (2022)

“We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees.” (Keynes, 1936).

This article posits that a housing bubble is underway expansion in Turkey due to mass emigration resulting from the 2022 Russian invasion of Ukraine, and is likely to pop during the post-war recovery period due to systemic risk. This is an inquiry of interest because of its recency and the importance of exploring conflict-related factors for bubbles. As of December 2022, Turkey has accepted over 46,000 refugees from Ukraine (United Nations High Commissioner for Refugees, 2020). Over 100,000 Russians have also fled to Turkey to avoid conscription (Reuters, 2022).

Fundamental Value

A bubble is forming in Turkey because the current prices of houses have skyrocketed above the fundamental value of the house — this value is “the present value of the future housing service flows that it provides to the marginal buyer” (Krainer & Wei, 2004). In other words, it’s a representation of an aggregate of subjective human values converted into a dollar value.

Factors Justifying the Formation of a Bubble

Asset Immobility

The residential property price index (RPPI) in Turkey rose by 189.2% relative to September 2021 (Central Bank of Turkey, 2022). The simplest…