A Palestinian laborer works on a construction site in the new Palestinian town dubbed Rawabi or "The Hills", near the West Bank city of Ramallah.
(photo credit: REUTERS)
The number of new homes purchased has declined by 8.3% compared to the same period last year, and the number of new housing units being built has fallen by 6.2% compared to the same period of 2015, according to data published by the Central Bureau of Statistics covering the first nine months of 2016.
While overall sales are still high in the housing market, the data shows a trend of declining demand. “Overall, the statistics add up to a 7.5% decrease in demand of new housing units by consumers between January and September,” the statistics bureau said.
The working assumption among economists at the Finance Ministry and the Bank of Israel has been that supply has not kept pace with demand. During a session of the Knesset Finance Committee on Monday, Bank of Israel Governor Karnit Flug said, “The main policy needed to deal with the housing market is continuing the efforts to increase supply, mainly in areas of high demand.”
Despite the data showing a decline in demand, it should be noted that the statistics are comparative to last year’s data and not absolute. The demand for new housing units remains extremely high in 2016, with the total amount of units sold thus far only second to record-breaking 2015. This explains why the Bank of Israel seems undisturbed by these numbers so far.
According to the Bank of Israel data, one possible cause for the demand decline is the fact that earlier in 2016 banks raised the interest rates on mortgages, and consumers are less likely to take out a house mortgage to buy a new home when interest levels are high.
“The rise in the risk factor of mortgages, as well as government regulation, has lead to a fairer pricing of risks,” Flug said. “Now, after many years of lowering mortgage interests, we see a certain increase of interests.”
Others point the finger at the Finance Ministry itself, saying the decline is a result of a bill that Finance Minister Moshe Kahlon has been advancing since he took office.
The issue of the housing market and its high costs was at the center of the Kulanu party’s election campaign in 2015. During the summer of 2015, Kahlon imposed a NIS 1,000 tax on owners of three or more housing units in an effort to lower housing prices by combating the phenomenon of purchasing housing units for investment purposes rather than residence.
A recent press release by the Finance Ministry showed a decline in the number of housing units purchased for investment purposes. According to the ministry’s data, buyers of homes for investment purposes have constituted between 25% and 30% of all buyers in the housing market. However, since July 2015 the figure has fallen below 20%.
Traditionally, investment buyers are less likely to purchase new property and mostly purchase pre-owned housing units.
The rise in mortgage interests is a natural and safe move for banks, according to the Bank of Israel, which still maintains that the best solution is increasing the supply of housing units. The Finance Ministry declined to comment.