Club Convergence and Drivers of House Prices Across Turkish Cities

Abstract

Purpose – This paper aims to examine the convergence pattern of residential house prices in a panel of 55 major cities in Turkey over the period between 2010 and 2018 and to investigate the determinants of convergence club formations. Design/methodology/approach – The authors applied the log t-test to identify the convergence clubs and estimated ordered logit model to determine the key drivers. Findings – The results suggest that there are five convergence clubs and confirm the heterogeneity of the Turkish housing market. Istanbul, the commercial capital, and Mugla, an attractive tourist destination, are at the top of the housing market and followed by the cities located in the western part, particularly along the Aegean and Mediterranean coasts of Turkey. Moreover, the ordered logit model results point out that the differences in employment rate, climate, population density and having a metropolitan municipality play a significant role in determining convergence club membership. Practical implications – Large-scale policy measures aiming to increase employment opportunities in rural cities of central and eastern provinces and providing lower land prices and property taxes in the metropolitan cities of Turkey can help mitigate some of the divergence in the house prices across cities. Originality/value – The novelty of this study lies in employing a new data set at the city level containing 55 cities in Turkey, which is by far the largest in terms of city coverage among emerging market economies to implement the log t-test. It also contributes to the literature on city-specific determinants of convergence club formation in the case of an emerging economy.