Gov’t seeks to boost supply of small homes

Steinitz: We will stem the surge in property price and make it ‘easier for young couples to buy a first apartment’.

November 16, 2010 23:25
2 minute read.
Yuval Steinitz

Yuval Steinitz 311. (photo credit: Ariel Jerozolimski [file[)

The government is considering measures to encourage and speed up the construction of small apartments, Finance Minister Yuval Steinitz said Tuesday.

“The three measures that we presented on Monday are only the beginning of a variety of steps that are being discussed in an effort to stem the surge in property prices, so that it will be easier for young couples to buy a first apartment,” he said at the Government Companies Authority annual conference in Jerusalem. “Among the next steps we are considering are measures to encourage and assist the construction of small apartments of three to three and a half rooms, which are hard to find today for young families looking to buy a first home. Other measures that are being considered seek to deal with the demand side of the housing market.”

The problematic situation in the housing market demanded an immediate response, Steinitz said, and it was decided to gradually roll out short-term measures rather than a large package of measures that may have taken some time to implement.

“The government is not pretending that new neighborhoods will be built within a few months,” he said. “But the three short-term measures presented on Monday are expected to have an immediate impact on the dynamics of prices because in this market, as in the economy, future expectations affect the present.”

Meanwhile, the Bank of Israel on Tuesday reiterated its warning that continued rapid increases in property prices could challenge stability and lead to the development of a real-estate bubble.

“Housing prices have increased rapidly in the last two years, partially due to the low interest rate, after a decade in which they declined relative to the average wage and relative to the CPI,” the central bank said in a report on its policy decisions. “Thus, the current level of housing prices does not deviate significantly from the economic fundamentals of the housing market, but continued rapid price increases could threaten stability and... lead to the creation of a bubble.”

Since construction of new houses is lagging behind population growth and demand, the central bank has intervened in the mortgage market in recent months to curb high demand in the market.

“Since the Bank of Israel interest rate is appropriate to the current macroeconomic situation, the central bank recently adopted a policy to moderate housing demand by introducing macro-prudential measures,” the report said. “It did so by means of directives issued by the supervisor of banks intended to increase the cost of large floating-interest- rate mortgages with high leverage (i.e., with high loan-to-value ratios). These steps are intended, among other things, to cool the demand for housing until the supply of houses increases significantly.”

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