📈 economics

Does Landlord Tax Enforcement Raise Rents? Bounding the Incidence of Türkiye’s Formalization Campaign with a New-Tenant Rent Index

This paper demonstrates that while Türkiye's 2024–2025 landlord tax enforcement campaign coincided with rising rents, rigorous analysis reveals that the surge was primarily driven by the expiration of a rent cap rather than tax pass-through, with the campaign's actual contribution to rent increases estimated at only about 6%.

Original authors: Kerem Yavuz ARSLANLI

Published 2026-07-31

📖 6 min read🧠 Deep dive

CC BY 4.0

Original authors: Kerem Yavuz ARSLANLI

Original paper licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). ✨ This is an AI-generated explanation of the paper below. It is not written or endorsed by the authors. For technical accuracy, refer to the original paper. Read full disclaimer

The Great Rent Mystery: Who Pays the Price?

Imagine you are trying to figure out who is actually paying for a new rule in a crowded marketplace. This is the kind of puzzle economists love to solve, specifically in a field called "tax incidence." Think of tax incidence as a game of musical chairs, but instead of chairs, the seats are costs. When the government puts a new tax on landlords (the people who own apartments), the big question is: does the landlord swallow that cost and pay less from their own pocket, or do they immediately raise the rent to make the tenant pay for it? It's a bit like a lemonade stand owner getting fined for not having a permit; do they just pay the fine, or do they suddenly charge you an extra dollar for your lemonade?

This question matters because, in many parts of the world, a huge number of landlords don't officially report their rental income. Governments want to fix this by "formalizing" the market—forcing everyone to register and pay taxes. But there is a scary fear: if the government forces landlords to pay taxes, those landlords might just hike rents so high that regular people get priced out of their homes. If the tax ends up being paid by the tenant, the whole plan to help the government might actually hurt the people it was supposed to help. So, figuring out who really pays the bill is crucial for deciding if these tax campaigns are a good idea or a disaster.

The Turkish Detective Story

In this paper, a researcher named Kerem Yavuz Arslanlı acts like a detective trying to solve a mystery in Türkiye between 2024 and 2026. The government launched a massive campaign to catch 900,000 landlords who had been hiding their rental income. They used data matching, field inspections, and a new rule that forced all rent payments to go through banks. At the exact same time, rents in Türkiye were skyrocketing, jumping up by nearly 144% over three years.

The public was quick to blame the tax campaign. The story went like this: "The government forced landlords to pay taxes, so the landlords raised the rents to cover the cost!" It seemed like a perfect cause-and-effect story. But the researcher suspected there was a trickster hiding in the data.

The Double-Whammy Confusion
The researcher realized that two huge things happened at the same time, and they were messing up the clues.

The Tax Campaign: The government started catching landlords in January 2024.
The Rent Cap Expiry: Just six months later, in July 2024, a law expired. This law had been capping how much landlords could raise rents for existing tenants at 25% per year. When the cap expired, landlords were suddenly free to raise rents to whatever the market would bear.

Imagine a dam holding back a river of water (the rent cap). For two years, the water level was artificially low. Then, the dam broke (the cap expired), and the water surged forward. At the exact same time, someone started pouring more water into the river (the tax campaign). The public saw the river rising fast and blamed the person pouring the water, but the researcher suspected the broken dam was the real culprit.

The New Tool: The "New-Tenant" Index
To solve this, the researcher used a brand-new tool called the "YKKE" (New-Tenant Rent Index). Think of this like a special camera that only takes pictures of brand-new apartment leases. Unlike regular rent surveys that get stuck looking at old leases (which were stuck under the 25% cap), this camera only sees the fresh deals where the cap didn't apply. This allowed the researcher to see the "true" market price without the old rules getting in the way.

The Investigation
The researcher compared different regions of the country. Some regions had a lot of landlords who were caught by the tax campaign (high exposure), while others had very few (low exposure).

The Naive Guess: If you just look at the raw numbers without thinking, the regions with the most caught landlords had the biggest rent jumps. It looked like the tax caused the rent hike.
The Real Clue: When the researcher added a control for the "broken dam" (the rent cap expiry), the story changed completely. The regions that had the biggest "cap-bite" (the biggest gap between what rent should have been and what it was capped at) were the ones with the biggest rent jumps.

The Verdict
After doing the math and running the numbers through strict statistical tests (like a super-accurate lie detector), the researcher found that the tax campaign did not cause a significant rise in rents.

The "naive" estimate suggested rents went up by about 5.7 points because of the tax.
But once the "rent cap release" was accounted for, that number collapsed to just 1.1 points, which is statistically indistinguishable from zero.

In simple terms, the massive rent surge people were talking about was almost entirely the fingerprint of the rent cap expiring, not the tax campaign. The "broken dam" released a wave of suppressed rent increases that looked exactly like a tax pass-through, but it wasn't.

How Sure Are We?
The researcher is very careful about what they can and cannot say.

What they ruled out: They ruled out the idea that the tax campaign was the main driver of the rent crisis. Even if you give the tax campaign the benefit of the doubt, the researcher calculates that it contributed at most one-fifth (20%) of the rent surge, and likely only about 6%. The rest was the rent cap release.
What is still unknown: The study cannot prove that zero landlords passed the tax cost to their tenants. The data is a bit too "fuzzy" (because it looks at big regions rather than individual apartments) to rule out small, hidden pass-throughs. It's possible that in some specific neighborhoods, tenants paid a little bit more, but the researcher cannot see that with this specific map.
The Conclusion: The public claim that "the tax campaign caused the rent crisis" is mostly wrong. The real villain was the expiration of the rent cap. The tax campaign, while huge in scale, didn't leave the massive rent fingerprint that people feared.

So, the next time you hear that a new tax is driving up prices, remember the Turkish detective's lesson: sometimes, the real reason prices are jumping is that an old limit just got lifted, and the tax is just standing in the background, looking guilty.

Technical Summary: Does Landlord Tax Enforcement Raise Rents? Bounding the Incidence of Türkiye's Formalization Campaign with a New-Tenant Rent Index

1. Problem and Context
This paper investigates the incidence of landlord income-tax enforcement in Türkiye's rental market between 2024 and 2026. The Revenue Administration executed a massive formalization campaign, utilizing data matching (title deeds, banking, utilities) and a mandatory bank-transfer rule to bring approximately 940,000 previously unregistered landlords into the tax net. This represented a 41.5% expansion of the rental-income taxpayer registry. Simultaneously, new-tenant rents surged by 144% (89 log points) over the campaign window.

The central empirical question is whether this tax enforcement caused the rent surge by passing the new tax burden onto tenants (a "pass-through" effect), or if the observed correlation was driven by other factors. The paper addresses a gap in the literature: while the incidence of property taxes and transaction taxes is well-studied, the rent incidence of income-tax enforcement on informal landlords has not been estimated, largely due to a lack of measurable enforcement shocks and high-frequency rent data capable of isolating them.

2. Data and Measurement Innovation
The study relies on three critical data components:

The Yeni Kiracı Kira Endeksi (YKKE): A new hedonic new-tenant rent index published by the Central Bank of the Republic of Türkiye (CBRT) starting February 2026. Constructed from bank appraisal reports, this index measures rents at the new-contract margin. Crucially, it is free from the "sitting-tenant stickiness" that plagues survey-based CPIs and, because it tracks new contracts, it was never subject to the 25% rent cap that applied to renewals. The index covers 19 regional strata monthly from January 2018 to June 2026.
Enforcement Exposure ( $f_r$ ): A predetermined measure of regional exposure, calculated as the number of newly revealed landlords per tenant household in each stratum. This is derived from the province-level taxpayer registry and 2021 census tenure data. Exposure varies significantly by region (e.g., 0.12 in Istanbul vs. 0.21 in the Western Black Sea) based on pre-campaign compliance levels.
Cap-Bite ( $C_r$ ): A control variable measuring the cumulative excess growth of new-contract rents over the 25% renewal cap during the cap's existence (July 2022–June 2024). This captures the "overhang" of suppressed renewals released when the cap expired on July 1, 2024.

3. Methodology and Identification Strategy
The paper employs a difference-in-differences (DiD) event study design on a stratum-by-month panel (July 2022–June 2026). The core challenge is that the tax enforcement campaign and the expiration of the 25% rent cap occurred simultaneously, creating a confounding policy shock.

Identification: The strategy exploits the fact that new-contract rents (measured by YKKE) were never capped, whereas renewal rents were. The "cap-bite" variable measures the regional magnitude of the suppressed renewal overhang. By interacting cap-bite with time, the model isolates the differential release of the cap from the tax enforcement effect.
Specification: The baseline equation regresses log new-tenant rents on stratum and month fixed effects, interacting enforcement exposure ( $f_r$ ) and cap-bite ( $C_r$ ) with time indicators.
Inference: Given the small number of clusters (15 non-earthquake strata), the paper utilizes wild-cluster bootstrap p-values (with the null imposed) and randomization inference over exposure permutations to ensure valid statistical testing.
Placebo: House prices (KFE) serve as a placebo. Under the model, if tenants bear the tax (full pass-through), landlord net income and asset values remain unchanged, implying no differential price response to exposure. If landlords bear the tax, prices should fall.

4. Key Results

Naive vs. Conditional Estimates: A naive specification (ignoring the rent cap) suggests a significant pass-through: new-tenant rents increase by +5.7 log points per standard deviation of enforcement exposure. However, this specification fails pre-trend tests, showing a pre-existing drift of +5.0 log points per year in high-exposure regions.
The Role of the Rent Cap: Once the model conditions on the "cap-bite" interaction, the pre-trend disappears (slope drops to +1.0, $p=0.46$ ), and the post-period exposure effect collapses to +1.1 log points per standard deviation. This estimate is statistically indistinguishable from zero ( $p=0.48$ via wild bootstrap; $p=0.34$ via randomization inference).
Price Placebo: House prices show no differential response to enforcement exposure (+0.6 log points, $p=0.71$ ), consistent with the rent result and ruling out demand-side confounders.
Robustness: The null result holds across alternative cap-bite definitions (one-year window, house-price based), anticipation windows, and measurement-error corrections (instrumenting exposure with excess registration growth rates).

5. Bounding the Aggregate Impact
While the study cannot reject full pass-through within the newly taxed segment due to limited power (the minimum detectable effect is 3.8 log points, while full pass-through predicts only 0.3–0.8), it successfully bounds the aggregate contribution of the campaign to the national rent surge.

Using the upper bound of the confidence interval, the paper calculates that the enforcement campaign accounts for at most one-fifth (20%) of the 2024–2026 national new-tenant rent surge, with a point estimate of 6%.
The naive estimate would have attributed 30% of the surge to the tax; the difference (24 percentage points) is quantitatively attributed to the release of the rent cap.

6. Significance and Claims
The paper makes four primary contributions:

Incidence Literature: It provides the first estimates (point and bound) of the rent incidence of landlord income-tax enforcement, a policy margin distinct from property or transaction taxes.
Tax Enforcement Literature: It adds evidence on the price consequences of enforcement, a dimension often missing from compliance-focused studies.
Rent Regulation Literature: It offers a cautionary identification lesson: where rent-cap releases coincide with other policies, the cap release can masquerade as tax pass-through. The study demonstrates that an appraisal-based new-contract index is the precise tool required to disentangle these shocks.
Housing Measurement: It validates the research utility of appraisal-based new-tenant rent indices (like YKKE) in markets where survey data is unavailable or biased.

Conclusion
The paper concludes that the apparent pass-through visible in raw data is almost entirely the "fingerprint" of the rent-cap release. While the study cannot definitively rule out that some tenants of newly formalized landlords faced higher rents (micro-level incidence), the aggregate evidence suggests that the formalization campaign did not drive the rent crisis. The fiscal case for landlord formalization does not carry a hidden, large-scale tenant-borne price tag at the aggregate level. The remaining open question is whether the incidence is concentrated in specific, lower-income segments that regional indices average out.

The Great Rent Mystery: Who Pays the Price?

The Turkish Detective Story

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