The best Turkish residential construction companies are at productivity
par with the U.S. Participation in intensely competitive international markets
has taught them the techniques to put them there. However, the debilitating
effects of high interest rates and the existence of a large segment of
traditional businesses has kept overall sector productivity levels well short of
their potential.
Success Story
Over the past two decades, the Turkish residential construction sector has increased outsourcing to specialized subcontractors. Since subcontractors are compensated through fixed payments, they have innovated to minimize labor costs and maximize their profits. In addition, large-scale contractors competing for international projects have excelled in project management and thus in productivity.
Hurt by High Interest Rates
Despite these successes, the sector as a whole has not performed well. Even in the modern segment, high interest rates have completely distorted the productive project funding patterns that are common elsewhere. And, since the mid-1990s, underlying economic volatility has created a major labor supply/demand imbalance.
The traditional sector, composed of small-scale construction companies, has not done well and remains mired in unproductive techniques. To the extent that they have survived the last few difficult years, they have done so by avoiding tax obligations and skimping on construction codes.
Mortgage Market IS Possible
Policymakers can ameliorate fund flow difficulties by creating a viable mortgage market. At acceptable cost, the government can position itself as a hedging intermediary between Turkish originators of mortgages and international investors. With conventional mortgages, buyers could then pay for houses entirely at the time of purchase, enabling a consistent flow of funding for construction.
Other Measures
At the same time, by reorganizing funds flows and transferring more revenue-generating responsibilities to municipalities, the government can create needed land development incentives.
As well, the government will also need to strictly enforce construction codes so that smaller, less efficient companies either improve productivity or exit the market.
Demand and Jobs
The pent up
demand for housing in Turkey will be enormous. By enacting the necessary
measures to ensure that it is met productively, policymakers can not only
fulfill a central societal need, but also generate an estimated 100,000 jobs in
the sector. Launch this chapter (PDF - 664 KB)
