Kahlon tax plan will push up rent price, critics allege

Plan would impose a heavy tax--up to NIS 1,500 a month--on people who own three or more apartments.

August 9, 2016 19:34
2 minute read.
Moshe Kahlon

Kulanu leader Moshe Kahlon. (photo credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)

The most recent plank of Finance Minister Moshe Kahlon’s program to lower costs for home-buyers may have adverse effects for renters, critics have warned in recent days.

Kahlon’s plan would impose a heavy tax – up to NIS 1,500 a month – on people who own three or more apartments. By taxing third, fourth and fifth apartments, Kahlon hopes to insulate homeowners and even those who have invested in a second apartment as a source of income, while pushing wealthy landlords to put their extra apartments for sale. Only some 50,000- 60,000 people would be subject to the tax.

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More apartments for sale mean a greater supply for would-be buyers, which should curb the price. Though Kahlon is making efforts to increase the supply by spurring more building and cutting back on construction times, even the most successful efforts could take years to bear fruit.

To move things along, Kahlon has targeted housing that has already been built, but is not yet on the sales market.

He already imposed taxes on purchasing apartments for investment purchases, moved to penalize owners of “ghost apartments” that remain empty for large parts of the year, and loosened zoning laws to allow some office space to become residential.

Those efforts should all, in theory, bring down the cost of buying a new apartment, but they would also have a secondary effect: taking homes out of the rental market, which could lead to a spike in rental prices.

“The idea of imposing a property tax on owners of three or more apartments will not serve a single one of the appropriate goals,” said Gad Pnini, a lecturer at the Center for Academic Studies.

Erez Cohen, the former chairman of the Real Estate Appraisers Association, took another approach.

“Kahlon’s idea to put as many apartments on the market is correct, at first glance, but the proposal of taxing a third apartment will cause the exact opposite effect, rolling the tax on to renters,” he said.

In Cohen’s view, the problem of taking supply off the market was less egregious than imposing a tax, which he thought would simply be added to rental prices. Instead, he suggested, Kahlon should encourage three-home owners by giving positive incentives to sell.

In the meantime, there is little cause to expect major changes in Israel’s housing market, according to economist Ofer Klein. In June, he noted, even as mortgage interest rates rose, so did the demand for new apartments.

“Given the low unemployment rate, the continued increase in real income, and the low interest rate environment, we do not foresee a trend change in the housing sector,” he said on Tuesday.

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