Housing: Stops and starts

Roni Brik, president of the Israel Builders Association, believes that government policy with regard to the real estate industry is flawed.

By JOHN BENZAQUEN
September 23, 2018 09:21
A laborer works on an apartment building under construction in the Har Homa neighborhood of Jerusale

A laborer works on an apartment building under construction in the Har Homa neighborhood of Jerusalem. (photo credit: REUTERS)

 
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The real estate industry in Israel is undergoing big changes, and prices seem to be steadying. The current government seems to be succeeding in what previous administrations had promised to do: stabilize the real estate market.

Roni Brik, president of the Israel Builders Association, believes that government policy with regard to the real estate industry is flawed. He says, “The government is dealing with the housing issue as it should. This government took office in the spring of 2015 and has been in office for three years. At the beginning, Finance Minister Moshe Kahlon made the right decisions. If continued, they in all probability would have brought about a positive change in the real estate industry in the long term. But this was not to be. A government is voted into office every four years, so they want quick results.

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They fail to understand that change in our sector is a long-term process, which entails long- term planning. But they take short-term measures that in the long run are counterproductive and harmful. They harm municipalities, developers and contractors, as well as those who don’t have a home of their own -- the very same people that Kahlon wants to help.”

What do you mean by ‘causing harm’? According to figures published by the Central Bureau of Statistics, prices are falling and housing starts are sufficient for the needs of the population. Are these figures distorted?

The price figures are indeed distorted because they are decreasing only only in certain areas where the government is involved in subsidizing land within the Mehir Matara project. This affects only a small part of the market because it is restricted to that part of the population that do not own an apartment of their own. This is less than 20% of the population. The major part of the real estate industry is made up of those who own a home and want to upgrade. This 80% of the market has now stagnated. The activity of the 80% has undergone a dramatic decline; consequently, the current price figures take into consideration only the 20% active Mehir Matara market. The other 80% are inactive, thus the price figures are distorted. In my opinion, the real price of housing has gone up during this period of time.

Despite what you are saying, prices are dropping and housing starts are increasing

The fall in real estate prices is artificial, and housing starts are decreasing and do not meet the needs of the industry. The housing starts of 53,900 units in 2016 dropped to 46,400 in 2017 and are likely to fall further this year. The 2017 housing start figures are less than what I call the natural demand of the market -- that is, the number of households created in a given year.

One of the reasons for the upward pressure on real estate prices is the fact that during the past 12 years, annual housing starts in general fell below the number of households created each year. The decrease in housing starts will increase the accumulated shortage of housing, which means that the upward pressure on prices will intensify.

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Real estate developers are worried. And because they are worried, they are wary about building homes. This means that in the foreseeable future, when those who want to upgrade their residences come back to the market, there will not be enough housing to go around. And everyone knows what happens when there is a shortage of a certain product: Prices go up.

Urban renewal projects seem to have stalled. Is that an accurate perception?

They have not stalled as such because they never really got off the ground. The reason is the stringent regulations. Whenever we discuss matters with the regulators, we get the impression that they view us as a bunch of contractors and, to a certain extent, the existing home owners who want to make a quick buck. They don’t see urban renewal as it should be. Urban renewal is a program that will benefit both the individual and the urban environment. It will allow those living in rundown apartment blocks to ultimately have larger and more modern housing. And it will definitely beautify the urban area. Despite the importance of urban renewal, only a few thousand projects have been implemented.

Do you think we’re heading for a housing crisis?

We are in fact in the midst of such a crisis and have been so for many years. Unless the government takes the necessary steps with regard to the real estate industry, we will intensify the crisis, which is a shortage of housing.

According to the figures of our association’s Economic Department, by 2050 Israel will have to double its stock of housing to three million units. As things stand, this goal is unattainable because a government team of experts from the Ministry of Housing, the Israel Economic Council and the Planning Administration formulated a long-term plan whereby 46% of all new construction nationwide will be based on urban renewal projects. This number rises to 70% with regard to new housing in the Tel Aviv metropolitan area. Since urban renewal projects are stalled, the chances of implementing the country’s long-term housing plan are very slim.

Do you think the heads of the municipal authorities are responsible for the problems with urban renewal?

The heads of municipal governments have a lot of power, and they can promote or prevent urban renewal projects. There are some who realize that urban renewal projects are the best way to strengthen their cities, while others will do everything in their power to prevent such projects.

But the municipal heads need government help because urban renewal requires costly infrastructural projects. Some municipalities are getting it. Ramat Gan, for example, has negotiated a “roof agreement” whereby the central government will finance the infrastructure necessary for the implementation of a healthy urban renewal program.

So due to erroneous government policies, are we in for hefty increases in real estate prices?

Without a doubt. In the very near future, we may see a surge in residential real estate prices even greater than that experienced between 2007 and 2016. For many years now, and that includes the past two years, successive governments have been making wrong decisions with regard to the real estate market. These include not making sufficient building land available to developers and not permitting enough foreign construction workers, thereby increasing the shortage of housing.

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