Urban Decay in Istanbul

Last winter I was amazed by the poor upkeep afforded to buildings in central Marrakech. I spent part of last week in fascinating Istanbul, and there it was again: plentiful ruins of recent buildings in the middle of busy shopping and hotel districts. Istanbul is in even worse shape than Marrakech. Many older houses are only maintained on the ground floor. There may be eight ruinous floors on top, eroding steadily and falling piecemeal into the street.

Many property owners in Istanbul fit their buildings with horizontal metal-grille shelves sticking out from the facade above the first floor. This keeps bits of a building from falling onto the tourists frequenting the street-level shops that pay the rent. The grilles and their installation must cost a pretty penny. Still owners prefer them to putting the money into renovation.

Again, I wonder about the economics of this. Is the dilapidation a result of some poorly worded rule intended to protect historic buildings? Are the property owners waiting for the old buildings to collapse so they can legitimately tear the remains down and build higher and more profitable structures?

Or is there insufficient demand for housing and office space in central Istanbul, so that the only parts of the buildings that actually pay for themselves are the ones catering to tourists?

Then I thought maybe the problem with getting property owners to pay for upkeep isn't insufficient carrot, but insufficient whip. Perhaps the reason no Stockholm property owner behaves like this is that if she does, she will get her ass kicked by the authorities. So I asked the city planning office of Stockholm municipality, stadsbyggnadskontoret. And they kindly explained that there are two levels of whip on these issues in Stockholm. The Planning Code demands that you keep your property in good shape: if you don't, the city planning office will tell you to either get the problem fixed or pay a fine. And if, as is common in Istanbul, your building becomes so decrepit that it's dangerous to people in or near it, you will no longer be allowed to use your building, for instance by letting out shop space in it.

Or maybe it's neither carrot nor whip, but a culturally established readiness to see buildings in severe disrepair, combined with a unwillingness or inability to invest now for long-term profit.

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Both the countries you mentioned have high-inflation currencies. As such, I can see why there's little incentive to invest into buildings for lease - any damage deposits your renters might have paid have long become meaningless, and where there is no incentive for the renter to keep up the property there's none for the landlord either. There might also be rent caps or an impossibility to evict in place that make a total rebuild and release more attractive than maintaining the property at a high level.

Interesting perspective. The lira has in recent decades seen hyper-inflation, and though more in control now, the inflation rate is more than 7 times as high as the Swedish krona's rate. But still, I doubt that the damage deposit's value stability would be a major factor in the decision to perform basic upkeep on your property. Real estate is after all a good place to place funds when times are uncertain.

Comment 1 is not correct. Morocco does not have a high inflation currency. It is a managed currency, and is pegged to a basket of currencies including the euro and US dollar, and as such has been one of the most stable currencies over the past decade.

Real estate in Istanbul is incredibly expensive and rents are high. This is driven by supply and demand. Turkey has been doing very well economically, which has sent real estate prices soaring, and creating huge demand. It may be that the areas you were looking at are not prime locations for business or where people are wanting to live these days. It may also be the planning regime as you posit.

In Morocco, there is no disincentive to leave buildings abandoned, which is a shame. A financial penalty for keeping buildings empty would do well to increase turnover in building ownership. Because there is no credit market, no possible equity release, many sellers try to price in a developers upside when they are selling a lot, something to be torn down, etc. Since developers are working with limited leverage, this becomes a huge disincentive to invest. Lastly, and this may also be the case in Turkey, inheritance laws which stipulate the distribution of property assets cause problems when all of the children can't agree on what should be the fate of a particular building.

EL, I'm talking about houses for instance in the extremely lively quarters along Istiklal Caddesi and in Sirkesi, Eminönu and the Grand Bazaar area. There are many fine new hotels and other buildings there. And many unmanaged ruins, all mixed.

Why is there no credit market? Because of Islamic rules against the lending of money for interest?

And I wonder, if as you assert real estate is expensive in Istanbul, why aren't people motivated by this to settle their inheritance troubles? Surely the Istanbullu know the value of cash.

Islam does have a ban on usury, but that does not imply a complete absence of credit. Dubai's economy is based almost entirely on Islamic banking (unlike some of the other emirates, Dubai has little or no oil).

Earthquake risk may be a factor here. Istanbul is in a seismic danger zone. If earthquake insurance is unavailable, then some owners may not feel highly motivated to maintain their buildings, which may be destroyed at any time. Conversely, if earthquake insurance is available to all without regard to building condition, there will be a moral hazard issue with respect to building maintenance.

Having never been to Istanbul, I don't know how bad a pollution problem they have, but the experience of neighboring Greece is that smog and automotive exhaust do nasty things to stone buildings. That could be a factor as well: people may trying to maintain the buildings (or at least obtain funds to do so), but the buildings are falling apart faster than repairs can be made.

By Eric Lund (not verified) on 21 May 2013 #permalink

Eric, the earthquake argument strikes me as rather weak. If true, it would not only keep people from maintaining their houses, but from founding the city in the first place.

Martin - Los Angeles ? You are too rational.

By Neil Howlett (not verified) on 21 May 2013 #permalink

Neil, Greed and corruption is rational for those who benefit. After the penultimate earthquake of San Fransisco in the 19th century, authorities and developers opposed suggestions that this was a poor site for a town, and San Fransico continued growing until the latest earthquake. And even then it was rebuilt on the same spot.
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By Birger Johansson (not verified) on 22 May 2013 #permalink

Greed and corruption is rational for those who benefit.

Exactly. Prior to the twentieth century most building owners would have had the means to rebuild after an earthquake. (Earthquake hazards were also not well understood at the time.) Most building owners today do not, so they get earthquake insurance if they can in order to rebuild. But that's only a good thing if the insurers insist on buildings being in reasonably good condition. If they don't, the building owner can wait for the earthquake to strike and pocket the payout, no matter the state of his building. As a parallel, consider coastal structures in the US. People are able to buy insurance for structures built at the coast in areas prone to hurricane storm surge, despite the obvious stupidity of building a house in a place where it is likely to be washed away in the next hurricane. That's why the damage along the Jersey Shore from Hurricane Sandy was so extensive. Many of those (owner-occupied) houses had recently had major repairs for damage done by Hurricane Irene just 14 months earlier.

People who own investment property (and any property that is leased to tenants is investment property) have an incentive to minimize their expenses, and one obvious way to do this is to do the minimum amount of upkeep necessary to keep the building functional. There are laws in the West to set that bar reasonably high, but at least in the US, the laws are not always effective. Sweden's laws are presumably more effective. The corresponding laws in Turkey, if they exist, may also be ineffective. Installing protective mesh to prevent stones from falling on people is cheaper than repairing the building. Not installing such mesh would be cheaper still, but apparently Istanbul's landlords have sufficient fear of liability that they view the protective mesh installation as a cost of doing business. That's a distinct difference from owner-occupied structures: if the apartment with a wall that's falling into the street is the one you live in, you are going to at least try to fix it.

By Eric Lund (not verified) on 22 May 2013 #permalink

Take a look at "Istanbul", a memoir by Orhan Pamuk. It's an enchanting book and might be relevant here.

By Carocha Meikles (not verified) on 22 Jun 2013 #permalink