Of interest to landlords and tenants: Proposals from the CBRT to curb high rents

The Central Bank of the Republic of Türkiye (CBRT) drew attention to the pressure of rent increases on inflation in its first inflation report of the year. The report emphasized that the implementation rate of the "25 percent rent increase cap" is low, which is why rents remain at high levels. The Central Bank has made proposals to lower rents. The report also noted that the rise in housing prices is affecting the upward movement of inflation. It was stated that real housing price growth reached its historical peak in the fourth quarter of 2022 but declined slightly in 2023.

PROPOSAL FOR LIMITATION

The proposals for housing markets included in the CBRT's inflation report are as follows;

"The importance of the housing market has increased even further following the earthquakes centered in Kahramanmaraş. The rise in housing prices is reflected in rents and can also affect inflation in various ways by impacting living and supply conditions. The reason for the slow reflection in the rent index measured in the CPI basket is that residential lease agreements, which show continuity, are typically updated once a year and are subject to various limits when this transaction is updated. Therefore, the reflection of the rise in housing prices on inflation comes with a much longer delay, and even if housing prices do not increase after reaching a certain level, they continue to affect inflation for a long time."

RENTAL AGREEMENTS TO BE MADE VIA E-GOVERNMENT

To manage the rental housing market more efficiently, there are certain methods applied in various countries. These methods include the use of electronic infrastructures and the monitoring of leasing processes through a centralized platform. Thus, the state of the rental housing market can be better analyzed, and appropriate policies can be developed for problems. To this end, it has been decided by the Ministry of Treasury and Finance, within the framework of the Action Plan for Combating the Informal Economy, that rental agreements will be made via the e-Government Gateway. This decision will ensure the establishment of certain standards in the rental market and support the healthy functioning of the rental market with impact analyses.

NUMBER OF RENTAL HOUSING UNITS MUST BE INCREASED

Planning to increase the supply of rental housing is an appropriate method to reduce the negative effects of existing regulations. Research shows that rent regulations negatively affect housing construction, maintenance, and investment in the long term. While excessive regulation shrinks the rental housing market, too little regulation undermines the trust of tenants (Haffner et al. 2008). Kholodilin and Kohl (2023) found that in countries that have implemented rent control since the Second World War in Europe, the number of rental housing units has fallen and the homeownership rate has risen. Therefore, it is important that regulations made to protect the rights of tenants in the short term are detailed so as not to harm the rental housing market in the long term.

When examining examples of some countries with different practices regarding the rental housing market; in the Netherlands, the state distributes its own housing stock among income groups at a rent lower than the market rent. In Italy, social housing rents are subsidized according to income levels at rates determined by the state. The private sector is also encouraged to produce rental housing. These practices are carried out to increase the supply of rental housing and provide suitable housing for those in need.

The importance of institutionalization in the housing rental market is significant. The fact that private sector companies, as well as individual investors, are renting out housing is a development consistent with global examples. In this way, rent tracking, regulation, and taxation will be easier. Furthermore, these companies can enter capital markets and expand their portfolios. This reduces the rental risks of individual investors while protecting tenants from fluctuations in the rental market regardless of their savings rates. Therefore, the institutionalization of the housing rental market is beneficial for both participants and tenants.

SHARED OWNERSHIP PRACTICE

For households that want to enter the housing market but do not have sufficient savings, the practice of shared ownership could be a solution. This practice can be implemented by non-profit organizations or institutional investors, especially in metropolitan centers. The "shared ownership" program implemented in London is an example of this. In this program, first-time homebuyers purchase at least 25 percent of the house while paying rent for the remaining share. They also have the right to purchase the entire house later.

GRADUATED TAXATION BASED ON NUMBER OF HOUSING UNITS AND VACANT HOUSING TAX

Among the legal regulations proposed to balance demand in the housing market is a system that increases tax rates depending on the number of existing housing units and applies an additional tax on vacant housing. In addition, housing loan models that offer affordable interest rates and flexible payment options to employees are also on the agenda. In these models, the number of housing units owned by the household is used as a factor determining the loan interest rate. In this way, it is attempted to reduce demand by increasing the cost of credit for those who own more than one housing unit. To this end, the amount of loans to be given to consumers who already own a home has been limited by the BRSA (BDDK).

IMPLEMENTATION RATE OF THE 25 PERCENT RULE IS LOW

The practice in our country that limits rent increases to 25 percent will end in July 2024. The purpose of this practice is to prevent tenants from being victimized due to the economic crisis. However, PÖS data indicates that the rate of rent updates in compliance with this restriction is quite low. This situation makes it difficult to provide a balance that protects the rights of both tenants and landlords. Therefore, a new regulation regarding rent increases is necessary.

SOCIAL HOUSING CONSTRUCTION ALONG WITH SUPPLY-SIDE SUPPORT FOR THE PRIVATE SECTOR

When analyzing the relationship between income levels and homeownership, it is observed that the homeownership rates of lower-income segments have remained quite low in the recent period. To encourage homeownership, it is important that housing production is not disrupted, prices are stable, supply-oriented support is provided to the private sector, and social housing projects are continued.