By JERUSALEM POST STAFFWho can afford to live in Jerusalem/anywhere (photo credit: CENTRAL BUREAU OF STATISTICS/MINISTRY OF CONSTRUCTION AND HOUSING/MILKEN INNOVATION CENTER)
The short answer is “not much.” What affordable housing means depends on whom you ask.For housing, the accepted standard is no more than 30% of annual household income should be spent on household ownership. It is based on an expectation of the maximum amount of a household’s income that should be spent on housing versus other things like food, clothing, education.Some people may spend more, but it is meant to allow for the financial health of the household.This translates to less spending on food, clothing, education, and other essentials – the financial danger zone.This is well known, studied, and worried about by the Bank of Israel and others.We can translate this 30% threshold to a maximum affordable home price. Based on customary loan criteria, and assuming a standard down payment, we estimate how big a mortgage households can afford at each income level. The resulting amount is the maximum “affordable” home price.Since it is a calculation based on household income, it is different for each income group (each income group represents 10% of households).For Jerusalem, with typical resale prices in 2015 estimated at almost NIS 1.8 million and new apartments at more than NIS 2.3m., only the top 20% can afford even resold apartments and only 10% can afford new apartments.Jerusalem is special, but it is not unique regarding affordability.While the government’s response to the housing crisis is a plan for more housing, this does not necessarily mean affordable housing. The government’s idea is that an increase in housing supply would gradually meet demand and prices would stabilize or even fall relative to incomes. However, in the near term – that is, during our lifetimes – this means that, despite a growing housing supply, new apartments can cost an average of more than NIS 2m. in major cities. Most importantly, the bottom five deciles, or 50% of the population based their average household incomes, cannot afford resold or new apartments in Israel’s major cities, including Jerusalem.In addition to releasing land for more housing, the government is working on affordability solutions, including longterm rental housing, low-bid tenders for land, financial structures to allow for cheaper long-term financing for housing developers, tax credits and regulatory relief on density and apartment size, reduced parking requirements, and mixed housing and commercial developments in urban areas.Many of these solutions were highlighted in a 2014 report titled “Toward Affordable Housing in Israel,” reflecting the practical and creative thinking of the industry, government, lenders and planners who participated in our Financial Innovations Lab.This article was a joint effort of the Milken Innovation Center of the Jerusalem Institute for Policy Research – Steven Zecher, projects director; Jacob Udell, research analyst.