The impact of carbon policies on housing affordability in Türkiye: A system dynamics analysis

Climate change has become a global priority, prompting governments and international organizations to introduce various mechanisms to combat its effects. One such mechanism is the Emissions Trading System (ETS), which charges for emissions exceeding set caps. In Turkiye, the Draft Climate Law and the Draft Regulation on Carbon Markets outline plans for an ETS establishment. The Ministry of Environment, Urbanisation and Climate Change (MoEUCC) announced that the ETS will be implemented on October 15, 2024. The major objective of this study is to investigate the impact of the planned ETS on housing affordability, considering the lack and insufficiency of studies on carbon pricing in the Turkish literature. For this purpose, a detailed conceptual model has been developed by using system dynamics, through a comprehensive literature review and expert consultation meetings. Firm-level analyses were conducted in the cement and iron-steel industries between 2024 and 2055, increases in unit prices were examined, and increase in construction costs and house prices were analysed. According to the results of the study, it is observed that the cement industry will face a 134% increase in unit prices and the steel industry will face a 47% increase in unit prices. The impact of the increased unit costs on construction costs was found to be 7% and the impact on house sales prices was found to be 5% price increase. The results show that the impact of the ETS on construction costs, house sales prices and housing affordability index is limited, but it leads to significant price increases in the industry. The study also presents a roadmap for the industry and policy recommendations for the government to minimize the cost effects of the ETS.