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Weekly UpdatesABSTRACT. The purpose of this paper is to explore the factors that affect housing prices in Istanbul. A hedonic price model is employed in order to examine housing price determinants with respect to property characteristics, socio-economic characteristics, neighbourhood quality characteristics, and locational factors. The results reveal that housing prices are affected by these factors: living area size, being in a low storey building, being in a secured site (with swimming pool and garage), and age of the building. In addition to these determinants, the length of time the inhabitants have lived in Istanbul, the average income of the household, neighbour satisfaction and earthquake risk of the area have effects on the residential prices in Istanbul. Further research is suggested by constructing a second model that includes neighbourhood dummy variables as a proxy for submarkets, and a multi-level modelling framework will be employed in order to analyse the urban housing submarket system.
KEYWORDS: Residential property market; Housing prices; Hedonic price models; Istanbul
1. INTRODUCTION
There is a vast literature that explores the structure and operation of urban housing systems. This literature tends to focus on the North American, Western European and South East Asian markets. There have been few studies of Turkish markets, as the relative immaturity of the housing research community, and the absence of suitable data has prohibited this sort of research. This situation has begun to change. In recent years, researchers have produced hedonic studies of the Istanbul housing system (Onder et al., 2004, Ozus et al., 2007). These papers have produced valuable insights to the determination of house prices. The analysis, however, has tended to provide only preliminary explorations of spatial market segmentation.
The purpose of this paper is to explore the factors that affect housing prices in Istanbul. In this study, housing price determinants are examined by employing a hedonic pricing model according to the neighbourhood administrative boundaries which can reflect the heterogeneous physical and socio-economical configuration.
The paper is organised in four further sections. The next section sets out the conceptual rationale for the study. This discussion highlights the limitations of standard hedonic models and, in particular, emphasises the problems with the treatment of spatial influences on markets structure. Section three provides some information on the study area and on the data used. Section four summarises the model results. Finally, the concluding part of the paper sets out the key findings and presents a programme for further research.
2. CONCEPTUAL FRAMEWORK OF THE STUDY
The fact, like in most urban areas, is that residential lands cover the largest proportion of the urban areas. The determinants of the housing prices can vary through out the interior structure of the housing unit and building, the structure of the neighbourhood that the house is located, market conditions and housing policies. The exterior determinants of housing prices are the component of physical, economic, social, cultural elements and accessibility to CBD, job locations and urban facilities.
According to the neoclassical approach the location of the housing unit, accessibility to CBD and travel time are the main facts that determine house prices or rental values. The foundations of the neoclassical economic approach are supported by hedonic price models that help to understand the housing preferences of the consumers. Thus hedonic models are taken into consideration, along with the physical structure of the housing unit, and spatial, demographical, and economic structure of neighbourhoods.
Explaining the determinants of the housing prices with only these factors is not enough to analyze the local housing system. Although the hedonic models are useful tools for understanding the housing segmentation, some conceptual constraints exist, such as the approach faults that capture the institutional factors. The hedonic models are useful tools not only for investigation of housing price changes, but also to operationalise the urban housing market system, but this is limited as a first stage of this study.
"Rather than perceiving a housing unit as providing homogeneous "housing services" at a single price, as in the access-space model, the hedonic literature postulates that house prices are determined by the value of each the individual physical and spatial characteristics of the housing unit" (Watkins, 2001, p. 2236). In addition to the characteristics of the residential unit, the spatial attributes determine the housing prices. The model's accuracy of predicted market values can be significantly improved by incorporating the spatial relationships in hedonic equations, and this can also reduce estimation errors for submarkets (Basu and Thibodeau, 1998; Bourassa et al., 2007). This can be achieved by three approaches, the first one being the inclusion of the distance or neighbourhood quality variable into the model (So et al., 1997; Watkins, 1998). The second approach is to employ a neighbourhood dummy variable as a proxy for submarkets like in (Rothenberg et al., 1991; Gallimore et al., 1996; Ozus et al., 2007). Finally, the third method is based on estimating a separate equation for each submarket. The identification of the submarkets can be done by grouping the administrative boundaries, definition of experts or classification by statistical methods such as cluster analysis (Adair et al., 1996; Bourassa et al., 1999; Watkins, 2001). In this study, neighbourhood quality variable is included into the model with the respect to spatial factors.
3. STUDY AREA AND DATA
3.1. The study area
Istanbul is Turkey's cultural, financial, educational, industrial and information centre, and is located on two continents: Europe and Asia. The advantage of this strategic location in the regions of Eastern Europe, Middle East and Soviet Republics attacks the attention of national and international investors. Istanbul has a population of 10 million (15% of the total population of Turkey) (Turkstat, 2007), and this surpasses the population of 22 EU countries (Eurostat, 2007).
The population grew from 1 million in 1950 to 5 million in 1980, and 10 million in 2000. Between 1950 and 2000 the population increased tenfold (Turkstat, 2007). This dramatic increase in the demographic profile of the city indicates that Istanbul's urban growth process is not a balanced development. Like most of the large cities in developing countries, Istanbul's rapid population increase is because of the migration due to job opportunities and the variety in the facilities make Istanbul a destination point for migrants from other cities in Turkey.
The rapid growth of the city since the 1950s, due to rural migration, has affected the quality of life in various sections of the city. While some of the modern districts have become more attractive, the historic districts have lost high income population due to the deterioration of their neighbourhoods and settlement of low income migrants (Onder et. al., 2004). Because of this expansion of industrial areas and migration from rural areas, legitimating the dwelling type in Istanbul has developed from detached to multi-storey housing blocks since 1960. Multifamily Housing/Apartments are still the most common form of residential development in Istanbul.
On the other hand, when migrants first arrived in Istanbul during the 50's, they settled in peripheral areas of the city by constructing "gecekondu" literally meaning "illegal squat". The squatter settlements spread over a 51,760 ha area making 54% of the area of Istanbul illegal (Gokmen et al., 2006). Unlike the single-family "gecekondus" with garden which were built between the 50's and the 80's, today's "gecekondus" are unfinished multi-storey buildings constructed with cheap materials without plastering or flashing. Public authorities contributed to the chaotic development of the city and to the emergence of the legal-illegal division by legalizing the "gecekondu" settlements because of the popular politic concerns and vote apprehension (Keyder, 2005).
Like most cities in developing countries with the dynamics of growth and globalization, physical transformation has occurred since the mid 1980's in Istanbul. The construction of shopping malls, five-star hotels, new office areas, gated communities, the gentrification of the historical and deprived neighbourhoods and the expansion of the city, have transformed the city from mono-centric form to a polycentric structure. These global influences of neo-liberalism have resulted in the inequality among the socio-economic classes and the differences in the quality of the built environment.
All these changes have created locational advantages and disadvantages, which are reflected in demand for housing and housing prices. According to the 2000 Population Census, in Turkey, 68% of households are owners, whereas 24% are tenants. In Istanbul, 58% of the households are privately owned, whereas 35% are tenants (Turkstat, 2007). The reason that the rate of the ownership in Istanbul is less than Turkey's average is because of the high housing prices in Istanbul.
The total number of households is 2,550,607 and the average household size is 3,85[m.sup.2] which is below the Turkey average. According to the Property Registry office, there were 132,440 housing and land transactions in Istanbul in 2004, and in 2006 this increased to 188,478. The housing market of Istanbul has seen a very dynamic period since 2004 with significant new housing construction progress. New housing projects have reached between 50,000 and 70,000 dwelling units in the period of 2004-2007, of which 60% are located in the European continent [Based on information from an interview with Serdar Serdaroglu (MSc Urban Planner, Real Estate Manager)]. The increase in the number of new residential projects reflects the influence of both demand and supply. The raise in the number of residential developments indicates that property is one of the major investment tools. In addition to the increase in the number of residential developments, an increase in long-term housing loans coincides with declining inflation and the new mortgage law ratified by the Turkish Parliament in 2007 makes property an important investment vehicle in Istanbul.
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