Financial Fragility on the Road: Rising consumer credit and declining home ownership in Turkey

Download full paper

Please cite the paper as:
&lquo;Alper Duman and Anıl Duman, (2013), Financial Fragility on the Road: Rising consumer credit and declining home ownership in Turkey, World Economics Association (WEA) Conferences, No. 4 2013, Neoliberalism in Turkey: A Balance Sheet of Three Decades, 28th October to 16th December 2013&rquo;

1 Comment ↓


Turkey by and large avoided the financial meltdown thanks to its moderate level of household debt ratio and relatively sound public finance structure. The stylized fact is that the consumption loss as a percentage of GDP has been greater for the countries with higher growth rates of household debt-to-income ratios prior to the global crisis. Although Turkey also witnessed a surge in household debt levels, the starting point was so low that the general effect was not as destructive. We study two main factors that will make this dynamic more fragile and hence increase the likelihood of a financial crisis in the future. First, the share of consumer credit in household budgets increase steadily for the lower and middle income groups. Second, due to formalization of land and real estate markets, home ownership rates decline for the median group of households which constitute the backbone of the labor force. Both factors have the potential to induce dramatic rises in household debt-to-income ratios and create systemic financial risks.

1 response

  • Yasin Kaya says:

    Thanks to the organizers of this conference. It is a great initiative.

    This article is thought provoking. I have two questions concerning its findings which seemingly in contradiction with Sonat and Herr’s article that is also published in these pages.

    1- Duman and Duman argue that disposable income in Turkey shrinks with increasing burden of debt payments and rent on household budgets. This affects real consumption growth (“which dropped to zero”). However, Sonat and Herr, along with many other political economists, argue that private consumption has been the engine of growth in Turkey in the recent years. These seemingly contradictory findings demand a class analysis of the consumption patterns.

    2 – Duman and Duman argue that home ownership rate in urban areas is in significant decline. However, Sonat and Herr point to the high real estate investment as a result of increasing capital inflows. If both are true, then we need a better analysis of the actors involved in this process? Who makes investments? Who are the buyers?

    My hope is that these questions/comments will seed a rich discussion.