BRICKS & MORTAR: Turkey's state housing agency courts controversy

By bne IntelliNews April 14, 2008

Nicholas Birch in Istanbul -

Erdogan Bayraktar is a man with a mission. As head of Turkey's state housing development administration, or TOKI, he's built seven times more housing units in the last five years than the administration built in the first 20 years of its existence: 290,000 flats, 358 schools, 227 mosques and 17 hospitals.

"That's between 18 and 20% of the entire construction sector, all of it without a penny from the Treasury," he tells bne in his office on the outskirts of Ankara, between meetings with High Court judges and contractors.

"Think of it", he goes on. "Of 3m houses in Istanbul, more than 50% were illegally built. They're dangerous. They need to be rebuilt. That's a job that won't be finished in my lifetime, or yours, but I'm determined to get as far as I can."

As concepts go, the theory underpinning TOKI's activity is simple enough: while subsidised housing for slum-dwellers remains its meat and drink, it pays for that housing via its activity on the conventional market. It builds plush houses for the wealthy and sells them at market rates. In March, it signed a protocol to build "holiday villages" for tourists along the length of Turkey's Aegean and Mediterranean coast. It's even currently in talks with Galatasaray Football Club over plans for a new $100m stadium to be built in suburban Istanbul.

Household name

Bayraktar's hyper-activity has made him a household name in Turkey. Serried lines of 9- to 14-storey tower blocks painted yellow, green, red or National Health Service blue, Bayraktar's creations dot the suburbs of Turkish towns all the way from Edirne in the northwest to Hakkari in the southeast. When news of a new housing development spreads, thousands apply for homes.

Nobody doubts Turkish cities' need for major renovation. A magnet for villagers leaving their land, Istanbul's population, for instance, has swollen from 1m to roughly 15m in 60 years. Like those of other cities, its suburbs are a chaotic scrum of what Turks call gecekondu (literally, "landed at night") - houses built illegally by immigrants on state land and enlarged over the decades. "Turkey is a country that is working hard to get itself into the European Union," Bayraktar says. "It cannot do that with its present urban structure, with its shoddy buildings and its gecekondu."

But Bayraktar's aims go well beyond aesthetics. He also sees TOKI's role as keeping the construction sector under control. "We may build only a fifth of the housing, but our influence is much broader," he says. "We increase employment, we bring discipline to the secondary sectors - cement and so on - and, above all, we are a brake on rising prices. Just this lunchtime I was talking to colleagues: in the past, flats in Ankara were going for TRY260,000, now they're 150,000. We have pulled prices down as much as possible."

It's an admirable aim. But it is not one designed to make TOKI many friends among private building contractors and on April 13 the chairman of Ankara's Chamber of Commerce announced he was taking TOKI to court for unfair competition. "With state backing, [TOKI] is throwing the whole construction sector to the winds," Sinan Aygun said.

TOKI isn't just a threat to contractors, he warned. "It is a threat to the state itself." Aygun was referring to Emlak Bankasi, Turkey's third largest state bank - heavily present in the construction sector - which went bankrupt in 2001. "Emlak cost the state billions. TOKI will too, soon enough, if the state carries on subsidising it."

Mustafa Sahin, CEO of Sahinler Grubu, agrees: "TOKI's role is to build social housing. But it has gone beyond that to compete with contractors. And the competition is not fair." For a start, thanks in large part to 2004 laws making it easier for it to procure land, TOKI is the biggest landowner in Turkey after the Treasury. It also pays lower construction taxes on its projects than its private sector competitors. "No wonder they can undercut our prices," Sahin says, adding that contractors are now forming consortia to combat TOKI.

Head of the Union of Turkish Contractors and one of TOKI's most bitter critics, Erdal Eren is sceptical of one of TOKI's central claims: to be building safer housing. Recent changes to a law on public tenders exempted TOKI from the obligation to have its building sites checked by structural engineers, he points out. "Even taxi drivers have to pass a test. The lives of thousands have been put into the hands of contractors who didn't even finish primary school and are now building nine-storey towers," he says.

It's not just the professionals who are unhappy. Last week in the Istanbul neighbourhood of Basibuyuk, dozens were injured when clashes erupted between police and locals protesting TOKI plans to knock down gecekondu and replace them with a new housing project. There have been half a dozen similar incidents in Istanbul alone this year.

Bayraktar insists dissent is the work of "outsiders, greedy people, profiteers." But Erdogan Yildiz, a member of a coalition of 16 Istanbul neighbourhoods struggling to make their voices heard as urban regeneration projects pick up speed, begs to differ. "Yes, our fathers built without permission, but only because they had no alternative", he says. "But we were given deeds in the 1980s, and have paid property tax ever since. We are not opposed to modernisation. We simply believe we are capable of modernising ourselves without state diktats."

His point is reasonable enough. TOKI does pay a lump sum to families whose homes are knocked down to make way for new housing. But it is easy to understand why some baulk at the thought of leaving a house they have owned for years only to start paying a mortgage on a new one.

Amid growing civil society calls for a government housing policy that puts more emphasis on participation, tensions over urban regeneration if anything look set to grow. Currently under discussion in parliament, a new law not only proposes a reduction in the property rights of gecekondu dwellers given deeds in the 1980s. It also foresees transferring authority to define what constitutes land suitable for urban regeneration from municipalities to the government.

TOKI would be the biggest beneficiary from such a centralisation of powers. But with the construction sector cooling rapidly after four years of 20% per annum growth, it is questionable whether the agency will be able to cash in.

Despite the slowdown, analysts still expect the construction sector to grow by between 8% and 10% this year. But growth would likely be powered by international contracts given to Turkish companies - worth $20bn in 2007. With high demand sending the prices of steel and ready-made concrete up by 60% and 300% respectively since 2006, most expect Turkey's domestic sector to have a slow year.

A construction sector expert with Turkiye Sinai Kalkinma Bankasi, Isil Dincer doubts government pledges to provide TOKI with cement at below market prices will have much effect. "TOKI has very few new contracts out," she notes. "Pretty much all of their current activity is just finishing off old jobs. Like everybody else, I think they are going to have to sit back and wait and see what happens."

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BRICKS & MORTAR: Turkey's state housing agency courts controversy

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