Econometric Modeling of Construction Cost Estimation: A VECM-Based Approach for Forecasting Price Fluctuations in Türkiye

Fatih Eren Metin and Kerem Yavuz Arslanli

ERES from European Real Estate Society (ERES)

Abstract: The construction sector in Turkey is highly influenced by price fluctuations, economic crises, and external shocks. In particular, the major earthquake in 2023 accelerated the increase in construction costs, revealing that price volatility in Turkey is significantly higher compared to other OECD countries. This study develops a forecasting model for construction costs using the Vector Error Correction Model (VECM). A total of 16 periods of data were collected from the first quarter of 2021 to the last quarter of 2024. The selected variables include total cost, labor cost, material cost, iron prices, and the Consumer Price Index (CPI). The VECM model was applied to analyze long-term economic relationships and short- term fluctuations in construction costs. The results were compared with traditional forecasting methods, demonstrating a lower margin of error in the VECM-based predictions. These findings highlight the necessity of data-driven modeling for more reliable cost estimations in the construction industry. The study provides a methodological framework for improving cost forecasting, particularly during periods of high inflation and market uncertainty. By leveraging econometric modeling, decision- makers in the construction sector can enhance financial planning and risk management. Future research may focus on expanding the model with additional economic indicators, testing its applicability in different regions, and developing long-term forecasting strategies to improve predictive accuracy.

Keywords: Construction Cost Estimation,; Forecasting Models; VECM (search for similar items in EconPapers)
JEL-codes: R3 (search for similar items in EconPapers)
Date: 2025-01-01
New Economics Papers: this item is included in nep-ara and nep-for
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