galilee housing 248.
(photo credit: Courtesy)
Last week, Prime Minister Binyamin Netanyahu appeared to have discovered the
housing bubble, reacting with great urgency by summoning a dramatic press
conference to address the ostensible emergency and announcing a set of
The Bank of Israel had already quickly adopted
technical measures to cool the feverish market by making mortgages marginally
more expensive. But the buzz and hype are quite belated. The bubble had
been steadily inflating for years.
Back when he took office in March
2009, Netanyahu declared that one of his main priorities was to overhaul our
housing market by thoroughly reforming the Israel Lands Authority (ILA), then
called the Israel Lands Administration.
The idea was to cut through the
red tape and make more land available for construction. Theoretically this could
have deluged the market with potential construction sites, which, in tandem with
reduced bureaucracy, would have significantly increased supply – supposedly
enough to lower prices.
The plan held promise for the long-range, though
there was plenty wrong with it. In all probability it was overambitious and not
entirely realistic. But such reservations are moot because to date nothing has
been implemented, despite the Knesset having given its approval of the reform in
What’s holding it up? For one thing, some 200 old ILA
framework administrators are to be laid off, but as of yet there’s no agreement
on their severance terms. For another, no progress has yet been made on
employment terms for officials in the revamped ILA. To facilitate meaningful
forward movement, these labor relations snarls will have to be undone in a
greater hurry than displayed hitherto.
IN THE meantime, Netanyahu now
offers a string of minor quick-fix incentives to induce builders to finish their
projects more speedily and thus perhaps cool demand. Among these is a 15 percent
discount on the price of lands sold via ILA tender, which will apply to
contractors who complete at least 80% of construction inside 30
Additionally, the Betterment Tax would be reduced from 45% to 20%
during 2011 only, again providing construction time doesn’t exceed 30
Finally comes another anti-red-tape measure: having local
authorities collect development taxes on public projects directly from
contractors. Without this, municipalities are hard put to issue construction
permits, generating considerable delays.
There’s nothing wrong with
clearing away bureaucratic underbrush, as the above incentives to some degree
are designed to do. But are these viable and sufficient solutions?
It’s not as if the contractors willfully drag their feet. With
current profits high they have every incentive – even without the new tax breaks
– to build fast. Their problem is twofold: the time it takes to secure permits
(which is where ILA reform is paramount) and the shortage of manpower.
long as cheap foreign labor is hired, Israelis will shun construction and
contractors will carp about worker shortages.
The vicious cycle must be
Unfortunately contractors assert that the only panacea is to
allow them to import into Israel 5,000 to 7,000 more Chinese laborers. But that
is precisely what our economy and society must not countenance, even if in the
short-run it gratifies the contractors. In the long-haul this is a recipe for
BUT THE biggest problem, still unaddressed, is the
fact that the availability of large stretches of land in the highly desirable
Central region is finite. Some privatelyowned land remains undeveloped because
the proprietors are far from eager to tackle the gargantuan and convoluted tax
issues that thawing their plots would entail and which the much-touted seeming
quick-fixes do not fix. Additionally, contractors are hoarding vacant lots as
In this tiny country – with a relatively young
population, immigration, upward mobility and real estate purchases by
nonresident foreigners – demand so chronically exceeds supply that minor
inducements simply will not light great fires under contractors.
credible solution must include, as a disincentive to speculation, higher
taxation on lands owned by contracting firms (as distinct from individuals) but
unused for over two years. It must feature a serious push to attract young IDF
veterans to the building trades. And it must ensure that the stalled ILA reform
is finally expedited.