Estimation and Determinants of Housing Supply Elasticity in Turkey

We estimate the price elasticity of housing supply and then provide empirical evidence on the determinants of the estimated elasticities at the province level in Turkey for the 2008Q1–2017Q4 period. The price elasticity of housing supply is a measure that provides information on how housing supply responds to price increases, and it plays a crucial role in urban development. The motivation for studying housing supply elasticity in Turkey stems from several reasons. First, over the last two decades, the construction industry has been the booster of the growth of the Turkish economy, and legal reforms support the rise of the sector by lifting regulatory restrictions on property development. Second, housing affordability has become one of the hot topics in Turkey due to rising house prices and an inflationary environment. We contribute to the housing studies literature by estimating housing supply elasticity and determining the factors that explain the elasticities in an emerging economy. The studies on housing supply elasticities agree that barriers to residential construction in the form of land availability or regulations are the main causes of low supply elasticity. Our results suggest that Turkish provinces have relatively low housing supply elasticity, and in line with the literature, geographical constraints seem to be associated with lower elasticities. We also provide evidence that demographic characteristics and local regulatory conditions matter in this environment.