New Israeli housing plan to shutter Airbnbs, raise purchase tax

The plan focuses on three goals: investments in increasing the housing supply, structural changes to the market and short-term tactics to cool down demand and increase supply in the housing market

 INTERIOR MINISTER Ayelet Shaked, Finance Minister Avigdor Liberman and Construction and Housing Minister,  Ministerial Liaison to the Knesset, Jerusalem Affairs and Heritage Minister Ze'ev Elkin at a meeting discussing the Economic Arrangements Law, October 31, 2021 (photo credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)
INTERIOR MINISTER Ayelet Shaked, Finance Minister Avigdor Liberman and Construction and Housing Minister, Ministerial Liaison to the Knesset, Jerusalem Affairs and Heritage Minister Ze'ev Elkin at a meeting discussing the Economic Arrangements Law, October 31, 2021
(photo credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)

Israel will crack down on unauthorized vacation rental apartments and restore the purchase tax on apartments to 8% as part of a comprehensive plan to cool the housing market and slow down skyrocketing housing prices.

The plan presented Sunday by Finance Minister Avigdor Liberman, Construction and Housing Minister Ze’ev Elkin and Interior Minister Ayelet Shaked includes 17 different components. Many of them have been made public or are included in the Economic Arrangements Law accompanying the budget, which is awaiting Knesset approval.

“No single element of this plan will be the magic weapon that lowers prices,” Liberman told reporters ahead of the announcement. “This plan is different from others that have been promoted and not worked because we have multiple ministries cooperating to do everything we can to slow rising prices.”

The plan focuses on three goals: investments in increasing the housing supply, structural changes to the market and short-term tactics to cool down demand and increase supply in the housing market, he said.

 “There are some factors that we have no control over, such as the prime interest rate in the US and the rising cost of building supplies, but we can improve other factors,” he added.

FINANCE MINISTER Avigdor Liberman and Interior Minister Ayelet Shaked at a meeting discussing the Economic Arrangements Law, October 31, 2021 (credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)FINANCE MINISTER Avigdor Liberman and Interior Minister Ayelet Shaked at a meeting discussing the Economic Arrangements Law, October 31, 2021 (credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)

Israel’s housing prices have risen by an average of 9.2% over the past 12 months and have more than doubled over the past decade, according to Central Bureau of Statistics data. Yet while the current government has made reining in rising prices a primary goal of the coalition, Liberman said the rise was part of a larger global trend in which Israeli homes have risen less than the OECD average in recent months.

The government’s plan to increase the number of apartments by 300,000 in the coming years is already ahead of schedule, with some 80,000 homes on pace to be approved by the end of the year, Elkin said.

Since the new government took office in June, a number of initiatives to stem rising prices have been announced. Among these have been massive investments in building and infrastructure; the Mechir lamatara plan, which offers discounts of up to NIS 300,000 on new apartments for young couples; grants for building in the periphery; legislation to speed up the approval processes for new buildings; importing 30,000 foreign workers to work in the construction sector; a plan to convert office buildings into residential areas; new urban-renewal projects and incentives, including an update to the Tama 38 framework; and investment in developing public-housing projects for long-term rentals.

Among the new plans announced were:

  • Encouraging building on private land by reducing the improvement tax from 47% to 25% over the course of four years, which will make it more worthwhile for individuals to add to their properties and sell them
  • Improving how single-family homes are used by incentivizing owners to split their properties
  • Forbidding the use of apartments as vacation rentals in the center of the country through online property-rental services such as Airbnb, a move that would restore 13,000 units to the housing market. This legislation will be introduced next week but will probably take four to five years until it significantly impacts the market, Liberman said
  • Increasing the purchase tax on apartments to 8%, after it was lowered to 5% last year in an effort to stimulate more investors to buy properties. Economists point to that decision by then-finance minister Moshe Kahlon as a moment when demand escalated noticeably. Elkin said he had originally pushed for raising the tax even higher, but he retracted after the data showed that 8% was the optimal rate.

The ministers said they had put aside personal issues to create the comprehensive plan.

“This was the first time I can remember seeing three ministers working together in an orderly fashion with mutual admiration and respect,” Liberman said.