(photo credit: MARC ISRAEL SELLEM)
Construction Minister Uri Ariel said that his price-targeting plan, which overcame some political hurdles Sunday, would cause the high cost of housing to start reversing course as early as 2015.
The plan to force contractors to bid down the final prices of new apartments before they even get access to land looked shaky in recent days, as the political tumult split the governing coalition.
Ariel, from the Bayit Yehudi party, which remains in the government, wanted to move the plan forward even though it had been approved alongside former finance minister Yair Lapid’s controversial zero-VAT scheme.
Prime Minister Benjamin Netanyahu fired Lapid last week, taking zero VAT off the table.
The Finance Ministry had worked to block Ariel’s price-targeting plan from moving forward without the zero-VAT plan, arguing that the plans were laid out side by side in a complimentary manner and could not stand alone. While zero VAT focuses on first-time homeowners, price targeting does not.
On Sunday, the Finance Ministry agreed to update the terms of the price-targeting plan so that 70 percent of the low-cost apartments would go to first-time buyers.
It also lowered the maximum price of the apartments in question to NIS 1.9 million.
“The Finance Ministry officials realized you cannot just stop a good, well-developed government program,” Ariel told The Jerusalem Post. “The understandings reached today put in practice the promises made to lower the cost of housing through dramatic acts, the like of which we have not seen before.”
The attorney-general approved the changes, saying they were minor enough so that the bill did not need to be approved by the cabinet again.
The Bank of Israel has thrown its support behind the program, but many economists believe it is too limited to actually affect prices in the market.
The main problem in the housing market is a shortage of new housing, BoI has repeatedly said, and the rate of construction starts and finishes in recent quarters has continued to fall short.
Regardless, economists expect home prices to spike in the short term, as couples who had put off buying new homes in hopes of getting the zero-VAT benefit flood back to the market all at once.