It sounds better in English

Our goal was to examine Turkey’s affordable housing financial environment today, identify gaps in the delivery system, identify peer nations (developed nations, parallel emergent nations, and some that serve as cautionary tales), offer a comprehensive vision of the future, and present action recommendations.

Father and son along the Bosphorus

AHI is still finalizing the report – when it’s done, we’ll post it, and I’ll describe it in more detail – so for the time being let’s limit ourselves to the main points, taken from the executive summary, which we wrote in English and translated into Turkish 

For Turkey to be competitive with developed nations in Europe and the Americas, Turkey needs to improve its housing – total supply, housing quality, and housing affordability – which lag behind other sectors of the Turkish economy relative to these countries to which Turkey aspires. 

Turkey’s economy is growing and its standard of living is rapidly rising.  

A developed nation in most respects, but not in housing finance

With a growing economy comes rapid urbanization and increasing housing demand, but housing production, finance, and formalization are lagging behind the need.

Improving Turkish housing across the board will not only improve the Turkish economy broadly but also lead to an increase in overall Turkish household income and better quality of life, as people have more flexibility to buy or rent housing they need.

Turkey should emphasize urban development, because that is where the growth will be, and that is where demand is rising faster than supply.

Regular AHI blog readers know that I’m an urbanist.  Cities are humanity’s future, and Turkey is urbanizing very rapidly, its economy booming.

Since the Romans, the Bosphorus has been a critical transshipment point for trade with Russia.

Turkey’s current population of over 70,500,000 people is growing at about 1.5% annually, projected to grow to 81,650,000 by 2015.  Most of this growth is happening in cities, which are growing at 2.0% to 2.5% annually, with the excess growth coming through rural immigration.  As a result Turkey, which was already urbanized by 2000 (65% urbanized), is today 70% urbanized and projected to be 75% urbanized by 2015, when roughly 61,250,000 families will be urban, an increase of perhaps 3,600,000 new urban households, requiring a similar number of urban housing units.  

Alanya, on Turkey’s Mediterranean coast

In the next 25 years, 2,000 cities worldwide will exceed 1,000,000 people

Our principal action recommendations are:

1. Shift government from housing production into housing finance.  TOKI should not be a builder or developer, but a lender, financier, and bank, as are its counterparts in Mexico and Thailand.

2. Diversify TOKI from just the supply side (more houses) to include also the demand side (helping customers buy homes), as in Mexico’s SHF, and the US GSEs (Fannie Mae and Freddie Mac).  Use the proceeds from securitizing TOKI’s loan portfolio as the equity base for reorienting TOKI into a housing bank.

Throughout the world, government tends, when it first ventures into housing, to start by being a direct actor – a builder, an owner.  In the US, we did it with public housing; the UK did it with council housing.  Many nations in the global south are doing it with for-sale construction programs.  Some, like Egypt, consolidate land use, zoning, ownership, and financing under one roof, creating in effect a market-insulated pipeline that runs as if in an alternate universe.  TOKI, to its credit, is much more active in the broader arena, and does excellent work throughout Turkey. 

But the demand side – helping people buy homes that are built by private developers – is empty, and will give Turkey much more affordability for the government’s role. 

3. Catalyze private mortgage banks by creating new financial products that complement the market.

When homes are a financial asset as well as a physical one, money moves faster.

Uskudar, the Asian side of Istanbul: booming residential growth

4. Allow municipal government to obtain nationally owned land for urban development and regeneration.

5. Create a national gecekondu transformation pilot program built around (a) demolition-and-rebuilding with formal housing, (b) favorable loans to transform and earthquake-reinforce housing.

More than half of all of Turkey’s housing is estimated to be gecekondu – either built out of compliance with building codes, or illegally on someone else’s land, or both.  This must be formalized somehow.  The path is complex, and the risk of granting undeserved amnesty is great … but cities must formalize, and the longer it is delayed, the more damage the delay does to urbanization and national growth.

Alanya waterfront: a gecekondu slotted in among formal housing

6. Develop consumer earthquake-reinforcement loans for sale through mortgage banks.  Use them as part of broad-based new policies to improve existing informal neighborhoods.

Even high-rises can be structurally unsound: Izmit, 1999

7. Create a rental housing association model for long-term affordable apartments.

This one’s more long-term than immediate, but it’s clearly desirable.  While we Americans think we have a high homeownership rate, the real strength of our residential sector, from the perspective of national competitiveness, is our permanent professional rental apartments, which promote labor mobility and household formation (more bedrooms mean more babies).

That afternoon, I was interviewed (in English) by CNN Turkey (click here for the 15-minute talk; I’m in English, but I’m translated over, so you may find it hard to hear me), and the next day, my talk was prominently featured in Turkey’s major newspapers, including Hürriyet and Sabah.

From Sabah

I hope I get the chance to go back, and start turning these recommendations into reality.

Back again in the fall?

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All legislation is carefully stored in labeled blue plastic bins

Since affordable housing policy is always an output of the government factory, I have over the years become fascinated by the complex ways in which legislation is created, how elected officials use their political capital, and how they use many things (including political vaporware) to manufacture it — and whether and how voters and stakeholders can gain confidence that their elected officials will pursue  and implement wise policies that enable the nation to thrive and its citizens to prosper.

When I was brainstorming with the leadership of Slum Dwellers International, it hit me:

Votes are political equity

You want equity, don’t you?

Think about it for a minute.  Voters have no guarantee that the candidate will continue his or her previous policies.  All you have to go on its track record and a reputation for integrity.  Compare that with what money says, and how debt and equity speak with different voices, as explained by Sherlock Holmes:

“Holmes,” said Watson, “while you were away at your wealthy benefactor’s secluded Lake Como villa, convening with world’s other great housing finance experts, I have been pondering your various expositions of the differences among debt (hard and soft) and equity (hard and soft), and it occurs to me that, as you have often spoken of the forensic tales told by the capital stack, so too is not only the credit decision different, so are the resulting business relationships formed.  It is almost as if the money itself speaks to the two parties.”

Equity is the voice of trust:

“I trust you … I demand no firm pledges.” 

Think about the choice you make in the voting booth.  You mark the box, and after that, it’s up to the elected official.  What happens when they go wrong?  We say they betrayed our trust.

That element of trust has always vexed the powerful.  “He’s an honest politician: he stays bought.”  Regardless of who said it, we can all sympathize with this wry aside from 150 years ago:

That sounds like debt, doesn’t it?

But that’s not the way it works.  The politicians, bless their hearts, cannot be so easily bought.  In fact, they have to deliver on their equity promises, because they have to face the voters again.

In equity, returns are variable.  One looks for cumulative returns over time.  Performance fluctuates.  Sounds like elected officials’ standing in the polls, doesn’t it?  Elected officials make investments — expenditures of political capital — when they have a long enough time horizon for the investment to show a return.  (In this, the US and UK systems are dramatically different, for in the US elections occur at fixed intervals, whereas in Britain the incumbent has the enormous advantage of being able to call an election when he (or she) thinks the time is right.)

Should I call an election now?

Maybe not …

Elections are periodic.  If the investment fails, you make another investment.  Elections thus create a feedback loop where the politicians have to demonstrate their returns.  That periodicity of market dynamic is why democracy works.  It creates accountability. 

That’s why every dictator since time immemorial has sought, as early as he can, to postpone elections or make himself president for life.  Any official who bans the polling booth might as well hang out a sign saying, All promises are hereby voided.

From Mugabe …

… to Chavez via Castro?

Votes are also the means whereby the poor level the playing field with the rich.  It’s no surprise stakeholders have always used political contributions as a means of gaining access, for they are a kind of subsidy, and carry the same unspoken message:

As Auric Goldfinger put it:

‘Money is an effective winding-sheet.’ 

“Riches, if I may inflict another of my aphorisms upon you, may not make you friends but they greatly increase the class and variety of your enemies.”

Against the power of plutocracy is the power of democracy — voting in a bloc.  The poor lack money, but they are vote banks.  They gain a stake at the table is through issue-oriented bloc voting, and become effective in gaining access to government resources only when they organize themselves into political parties and factions.  Tammany Hall worked because it delivered meaningful voice to immigrants.

Tammany Hall: “in counting there is strength.”

It’s also why SDI’s savings co-operatives are effective.  As they explain it:

From this perspective, the politics of SDI affiliates is a politics of accommodation, negotiation and long-term pressure rather than of confrontation or threats of political reprisal.

Accommodation, negotiation, and long-term pressure.  Sounds like equity to me.

This pragmatic approach is grounded in a complex political vision about means, ends and styles, which is not entirely utilitarian or functional. It is based on a series of ideas about the transformation of the conditions of poverty by the poor in the long run. In this sense, the idea of a political horizon implies an idea of patience and of cumulative victories and long-term asset building, which is wired into every aspect of the activities of the SDI network.

That’s equity thinking, and it’s part of what makes SDI distinctive and effective.  As the poor organize themselves into voting blocs, the first few times their political capital (votes) may be wasted.  Sustained over time, an equity-investing approach does bring forward elected officials who are responsive to the poor.  Holmes put it this way:

“When money talks, people listen.”

“Well said, Watson.”  Holmes looked up from the quarterly report of the Moriarty and Milverton urban redevelopment fund, in which he had invested a small sum.  “Here I am, having placed capital with these two gentlemen, and I find that not only are my attitudes toward them changed, so too are theirs toward the system in which they now operate.”  He shook his head.    “Capital civilizes.  Mycroft would chuckle at my naivete.”

Properly invested, political equity civilizes.

In politics, the taller candidate usually wins

Even politicians.

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