Ariel: Gov’t considering dropping VAT from some construction

Housing minister says he’s willing to spend billions to bring down real estate prices, which went up another 8% in past year.

Housing and Construction Minister Uri Ariel (photo credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)
Housing and Construction Minister Uri Ariel
Israel’s government is willing to reach deep into its pockets to help bring down the costs of housing, Construction and Housing Minister Uri Ariel told The Jerusalem Post in an interview at his Jerusalem office.
“I won’t give a number, but let’s just say 10 figures,” he said on Thursday.
Ariel has vowed to take action that will rein in the explosive cost of housing, which rocketed up another 8 percent over the past 12 months. Since 2008, the cost of housing relative to average income increased some 52%. One tool under consideration: eliminating all or part of the 18% value-added tax on certain priority areas for housing.
Ariel promised to clear bureaucracy, argued that evacuating settlements would raise housing prices, and explained why he prefers Chinese migrant workers to “infiltrators” from Sudan and Eritrea.
The World Bank ranks Israel 140th out of 189 countries in terms of construction permit bureaucracy. There are 17 different procedures that take 210 days of waiting. The series of umbrella agreements is meant to help cut around that bureaucracy on a case-by-case basis. Why not just cut the regulation itself?
The umbrella agreement is a part of a whole program that we’re carrying out to build 100,000 new units in 10 cities, in which the government is willing to pay some of the costs up front. We see that it really helps the local authorities.
We are always changing the planning process. We are examining each step from the beginning, getting rid of some of the burden, cutting out some of the people who have to oversee things. I’m not saying the process is OK, but we’re aware of the problem, we’re taking care of it and we’re seeing the beginning of results.
For example, contractors no longer have to put money down up front. That used to cost them money and maxed out their bank credit. We’re eliminating fees that will cost the government tens of millions of shekels. We’re also checking into suppliers, to make sure they don’t have too much market power. It takes time. It’s not that you make a decision and sign something and it’s done. This isn’t like plugging in Waze, it is like flying airplanes.
One thing I can say is that there’s been very good cooperation between the ministries.
People are putting egos aside and making sure work gets done.
What other policies are you pursuing to bring down costs?
I believe in the rental market. We don’t have a developed one right now, but it will take years.
One idea we discussed at high levels for putting money on the table is to reduce the VAT. Now it’s at 18%, so say we reduce it, maybe not the whole way but part of the way, for certain apartments, depending on the specific places we want to encourage, it must have an effect on the market. The contractors have to react, because other people will have to compete.
Maybe not the whole way, but part of the way.
It’s not like pushing a button, I don’t know how long it will take, but they say I’m a bulldozer, so I can push things through. I’m convinced that we have to put government money on the line.
How long do you think it will take for the prices to come down?
The rise will stop in 2014, and hopefully start coming down by 2015.
Some people are worried that if prices fall too quickly, it will have negative repercussions for the economy.
I’m familiar with that argument. There won’t be a crisis that will collapse the market. But let’s say that in a few years we’ll see a decline in tens of percentage points. The problem now is that there is no channel for savings that can earn money, so it goes into the housing market.
That’s also why you see the mortgages running up in a crazy way.

A huge part of the bureaucracy and cost of construction – half the delay, according to the World Bank – is situated in the local authorities. Why not take that authority out of their hands?
They are doing their part, participating in the umbrella agreements, promising to get a lot done in 90 days. We believe in carrots more than sticks. If you come and threaten mayors, they will just ignore you.
How are you dealing with the shortage of workers?
We’re working with the Interior Ministry, to get more permits from China. Right now we’re waiting on the Chinese government.
Why not put the Sudanese and Eritrean migrants who are already here to work?
From the practical side, they’re not professional – they’re not builders. They need to know what they’re doing. Also, the contractors have no idea how long they’ll be here, so you invest a lot of money and then you don’t know how long they’ll be here.
From the political side, I don’t think an infiltrator that comes in should be given these incentives, should be given work.
They don’t want to go back, and there would just be more. This is the proof this is a land of milk and hotel.
There’s a worry that in the event of another intifada, Palestinian construction workers will not be able to come into Israel and construction will halt.
No question, the branches that are dependent on Arab labor – agriculture and building, and some services – are in a tough spot. In the end, the Palestinians are looking for work, and need to work.
They don’t have work there, and here they get much better conditions. Even in the worst days of the intifada, they came to work. At the end of the day, a man has to bring pita and oil home. What, will he sit at home and Abu Mazen [Mahmoud Abbas] will give him work? When one [Palestinian] worker in Israel supports up 10 people in Judea and Samaria, what’ll he do? There’s a problem: We can’t depend on them; but there’s an upside: We give them work.
There are arguments from the Left that building in settlements detracts resources from building in the Center, and arguments from the Right that building in the settlements is the solution to the housing crisis. Where do they fit into the housing issue?
Again, I have answers from the professional and the political perspectives. From a professional point of view, it doesn’t cost more to build in settlements. There are no benefits. Those “facts” are simply wrong.
We’re talking about ways to build more apartments in the Center, but Ariel is the center of the country. It’s eight minutes from Rosh Ha’ayin. Each apartment built there is built in the center of the Israel.
If there’s no Ma’aleh Adumim, and Betar Illit, the costs here would be 15% higher. I say this from an economic perspective.
Now from the political side. If tomorrow they get rid of 100,000 Jews – and that’s about what they’re talking about – and we need, say, 28,000 apartments to accommodate them, has someone said what will happen to the housing markets?