The demand for housing in Turkey continues to grow, but supply continues to lag, keeping real estate prices elevated and squeezing buyers out.

Strong demand is being driven by individual buyers and investors, who are trying to take advantage of the hot housing market, as well as the growing population. But limited inventory has pushed up prices, with residents struggling to find affordable homes to rent or buy.

Add to that the fact that the construction permits remain low despite a slight rebound following a dip in 2019, as builders struggle with shortages and higher prices for inputs.

Still, residential property sales have been rising despite high borrowing costs and soaring prices. The demand for housing in Turkey is said to have reached 800,000 units per year, versus a supply that has been hovering at around 550,000.

Sector players are citing soaring costs, land prices and fluctuations in the economy as the main reasons behind lower real estate production.

Despite the high demand for new construction permits prior to 2019, Nazmi Durbakayım, the head of the Istanbul Constructors Association (INDER), stressed a steep decline over the last three years.

"The applications for building permits, which dipped to 319,000 in 2019, increased to 550,000 in 2020 and to 710,000 in 2021. The number of apartments that were granted permits has reached 1.58 million over the last three years, while the required number of production units totaled 2.4 million," Durbakayım said.

"The supply has lagged far behind the demand."

Soaring housing prices and rents have been ringing alarms so far this year. The government has pledged to act, in addition to several measures it announced earlier this month to address the soaring real estate prices.

Turkey’s residential property price index (RPPI), measuring the quality-adjusted price changes of homes, surged an annual 110% in March in nominal terms, official data showed.

The index leaped an annual 96.4% in February. The increase had stood at 77.5% in January and 59.7% in December. Almost a year ago, the index’s annual rise was 32%.

The surge comes against a background of rising inflation, which runs at a 20-year high of nearly 70% as of April, propelled by rising energy and commodity prices.

The construction index has soared 102% year-over-year in March, according to data from the Turkish Statistical Institute (TurkStat).

House sales in Turkey rose nearly 40% year-over-year in April to 133,058 units, despite high borrowing costs and soaring prices, as households continue to view real estate as an attractive investment tool to shield themselves from inflation.

Sales from January through April were up 26.2% to 453,121 houses.

As part of the scheme announced by President Recep Tayyip Erdoğan earlier this month, cheaper housing loans will be provided to those who convert their foreign exchange savings to Turkish lira or sell their gold to the central bank.

Ankara has called on individuals and companies to convert their foreign exchange savings to lira to support the currency and unveiled a scheme in December to boost lira deposits by protecting them against exchange rate volatility.

Erdoğan said the measure on housing loans would support this effort, reversing a yearslong dollarization trend.

Loans will also be provided to construction companies to complete some projects if they promise to keep sale prices unchanged for a year.

Erdoğan said the loan package for construction companies aims to raise the housing supply, thereby bringing prices to balance.

Durbakayım said that the interest burden of those in need of housing has been reduced with the alternative support package, which he considers will facilitate access to houses.

Ege Yapı Chairperson Inanç Kabadayı stressed the imbalance between supply and demand that emerged with the coronavirus pandemic.

Kabadayı said the new packages would be a significant incentive for real estate production.

"With such steps taken to stabilize this imbalance as soon as possible, the supply will increase rapidly. In addition, encouraging new projects to be started with cost-effective loans will also increase the production of new housing," he added.