Housing trailer hillside city view 390 (R).
(photo credit: REUTERS)
The patience of “outraged” Israelis is running out. The central problem is
expressed in the cost of housing. What is behind the high prices of property in
Israel? Half a year has passed since their massive march, and “outraged”
Israelis continue to demand social justice.
Despite the efforts of the
Trajtenberg Commission to offer a systemic solution to the inequity, Netanyahu’s
government’s inability to reduce the cost of living is clearly seen in the
housing sector, the core of the discontent.
As a fourth of family
expenditures in Israel go to cover residential costs, conflicts of interests
within the ruling coalition make public plans to build housing as recommended by
Manuel Trajtenberg a chimera. Why is the current Israeli government unable to
reduce housing prices? What are the interests that underlie social demands?
Looking beyond the electoral demagogy, it is possible to see some
The main reason for the Israeli housing
shortage is the limited range of real estate. With only 105 residential
units per 100 households, a ratio that is among the lowest in the developed
world, Israel offers 30,000 new properties per year, compared to a growing
demand for over 40,000 homes annually. This supply deficit is compounded by the
large amount of property acquired for investment purposes and not available for
rent. At present, according to the Israel Electric Corporation, this amounts to
47,000 housing units.
Netanyahu’s intention to reduce the size of
government is only theoretical when it comes to giving up the attractive returns
the Tax Authority receives from the real estate sector. The government’s annual
income from fees and property taxes is, at present, close to $1.8
billion. Expanding the range of real estate through social housing could
reduce market prices, but would in turn shrink government revenues at a time
when the Jewish state requires a financial cushion to deal with the uncertainty
generated by the Iranian nuclear threat and the unstable political situation in
the Arab world.
In the past four years, Israeli home values have
increased on average by over 40 percent and the cost of construction has
followed suit, so that lower prices would not be well received by the banking
system or by construction companies, the two sectors which finance most of the
ongoing building projects. A reduction of real estate prices would push
contractors to resign part of their return, currently about 20%, creating
incentives to curb future investments, and therefore replacing the current
private investment with public expenditure, rather than expanding the supply of
One of the fundamental questions is whether the fall
in prices would really benefit most of the “outraged” in Israel. According to
the consulting firm TrendIT, 49% of the participants of the “March of the
Million” belonged to the richest 30% of society, and 87% to the country’s
wealthiest half. Many protesters already have a home, and if property
prices come down, this same social strata would experience a reduction in their
net asset value.
The Trajtenberg Commission’s recommendation to build
200,000 new homes in the next five years to reduce the cost of housing could
halt the rise in prices in the short term, but would hardly stop the pricing
trend in the long run, which from 1968 until today is estimated at a rate of 2%
plus inflation per year.
Despite the loud claims to the contrary, most of
the Israeli players in this field will benefit if housing prices remain as is,
or rise, including the government, banks, builders and property owners – even a
large number of the demonstrators in Tel Aviv. It is therefore likely that in
the coming months, measures will be aimed at reducing the bureaucracy to
encourage investors to buy property in Israel.
Faced with this housing
trap, the Israeli homeless and those who decide to support them in a show of
solidarity, must continue the fight until reasonable proposals are made and
rules become fair. In the words of Martin Luther King, “Injustice
anywhere is a threat to justice everywhere.”The writer is managing
director of Bacalor Strategic Consulting: www.bacalor.com