Alternative housing plans advance, even as 0 VAT stumbles

Plan may not make a substantial dent in the housing market, a former chairman of the institute of real estate appraisers says.

November 19, 2014 18:49
2 minute read.
settlement construction

A laborer works on an apartment building under construction in Jerusalem. (photo credit: REUTERS)

Several proposals to help reduce the cost of living have advanced in the Knesset in recent days, even as Finance Minister Yair Lapid's contentious 0% VAT bill remains mired in coalition politics.

The Israel Lands Authority, approved the Target Price plan favored by Construction Minister Uri Ariel, which would force contractors to compete on lower final sales costs on discounted plots of land. The plan added a lottery after the first four months to ensure that contractors did not simply turn over the discounted units to friends, family, or buyers willing to slip them extra cash on the side.

The plan, however, is limited in scope, and may not make a substantial dent in the housing market, said Erez Cohen, a former chairman of the institute of real estate appraisers.

"In principal, the idea of target pricing is right, and it's too bad they didn't implement it sooner. The big problem is that it appeared out of nowhere, too little and too late, and will get lost in the sea of words on canceling the VAT that has turned the real estate market into a joke," he said.

Since the 0 VAT plan's announcement, a swath of potential beneficiaries have put off buying apartments in hopes of getting the discount should it come to pass. As a result, new home sales have plummeted, throwing a wrench into construction companies' businesses. Oddly, the Construction Ministry is further discouraging sales by appealing potential buyers to wait until the price target plan is in place as well.

The Interior Ministry approved an amendment to the "Vatmal" law, which provides a regulatory fast-track to large building projects. The amendment would require 30% of units in such projects to be designated as affordable housing, half for long-term rent and half under supervised rental prices.

Another plan, the 90% mortgage plan, was approved by the Ministerial Legislative Committee on Sunday, but Lapid put the kibosh on it Monday, sending it to the cabinet where it was expected to fall. That plan, championed by MK Orly Levi-Abekasis (Yisrael Beitenu), would expand government guarantees of mortgages from 70% to 90%, meaning buyers would only have to put 10% of the cost of the home down.

The Bank of Israel has tightened restrictions on downpayments for fear that a flood of buyers with high monthly mortgage payments could put the mortgage market at risk, and potentially destabilize the financial system.

The Finance Ministry opposed the plan because it would raise demand, which would actually push prices higher given the shortage of new housing supply.

Ironically, both Finance Ministry professionals and the Bank of Israel have used the same argument against Lapid's own 0 VAT bill.

As part of the international day to fight poverty, Eli Elalouf, who chairs the Committee on the war on poverty, noted that housing costs were of particular concern to the poor.

Families below the poverty line can spend up to 80% of their income on housing alone, he said.

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