The Demand and Supply Model of Housing: Evidence from the Turkish Housing Market

32 Pages Posted: 15 Aug 2014

See all articles by Yusuf Varli

Yusuf Varli

Borsa İstanbul - Research Dept.

Orhan Erdem

Rockford University

Date Written: August 13, 2014

Abstract

This paper models the demand and supply sides of the housing market separately. In the empirical analysis, the vector error correction model (VECM) is preferred to identify the impacts of fundamental macroeconomic factors on the demand and supply sides of the Turkish housing market between the period of October 2007 and June 2012. It is found that the housing market and macroeconomic fundamentals, such as the interest rate, gross domestic product (GDP) and housing prices are cointegrated. In light of the evidence on two cointegrating equations, the error correction model is estimated to examine the effect of the variables on housing demand and supply in Turkey. While the dependent variable on the demand side is real mortgage credit volume, the dependent variable explaining the supply side is the number of construction permit. The study reveals that the macroeconomic variables have different impacts on the dynamic behavior of mortgage credit and construction permit numbers. Additionally, the impulse response analysis based on structural VECM suggests that the housing market in Turkey is sensitive to shocks in the economy. This study also presents forecast error variance decompositions (FEVD) and indicates the important role of real house prices and real GDP per capita on the housing market in the long run. Therefore, we point out the significance of policy implications of real prices and income in the Turkish housing market.

Keywords: Housing Supply, Housing Demand, Cointegration, Vector Error Correction Model, Turkey

JEL Classification: C22, C51, R21, R31

Suggested Citation

Varli, Yusuf and Erdem, Orhan, The Demand and Supply Model of Housing: Evidence from the Turkish Housing Market (August 13, 2014). Available at SSRN: https://ssrn.com/abstract=2479794 or http://dx.doi.org/10.2139/ssrn.2479794

Yusuf Varli (Contact Author)

Borsa İstanbul - Research Dept. ( email )

Reşitpaşa mh.
Tuncay Artun cd.
Istanbul, 34467
Turkey

Orhan Erdem

Rockford University ( email )

5050 E. State Street
Rockford, IL 61108
United States

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