Only better transport can solve the housing crisis

Until it takes less time to reach Tel Aviv from Yeroham and Yokne’am, they won’t be property-market favorites.

Stanley Fischer 311 (photo credit: Bloomberg)
Stanley Fischer 311
(photo credit: Bloomberg)
There is no denying that Israel faces a whopping housing predicament. And it is rapidly turning into an economic danger.
Bank of Israel Gov. Stanley Fischer recently issued a dire warning about the engorged real-estate bubble that, to his mind, threatens to turn our economy into something vaguely resembling that of Ireland. His words stirred a tempest of controversy, mainly revolving around how better-buttressed Israel’s banks are vis-à-vis their Irish counterparts.
But that’s almost beside the point. Chronically, demand in our housing market far outstrips supply. Current supply is about 50,000 housing units below demand. By Israeli yardsticks that’s a huge gap, which in itself causes prices to spiral.
Accompanying this underlying condition is the fact that ever since 2008’s credit crunch, mortgage rates have remained enticingly low, which further increases demand.
Low rates have drawn many into the housing market who otherwise wouldn’t have ventured there. This includes first-time buyers who might have difficulty keeping up with mortgage payments once the floating rates float upwards. Also tempted were investors for whom affordable mortgages constituted very lucrative deals.
Fearing the bubble and ensuing inflation, Fischer has been striving to lower the inordinate attractiveness of mortgage rates and thus cool the market. The government also recognizes the existence of a problem. But things look different from its vantage point. The government cannot solely focus on the fiscal potholes but must factor in the mounting social discontent of would-be home-owners frustrated by spiking prices. This is something the government needs to address or risk alienating its electorate.
Fischer’s aim is to lower inflationary risks, while the government has to lower prices to defuse sociopolitical time bombs. Hypothetically, Fischer and Construction and Housing Minister Ariel Attias could be at cross purposes.
Thus when Fischer moved to toughen mortgage conditions, Attias announced that more credit will be offered to first-time home buyers. While Fischer essentially needs to make homes less affordable to lower demand, Attias needs to make them more affordable. What keeps Attias from direct conflict with Fischer is the stipulation that his extra credit applies only to home-seekers in multi-dwelling complexes in the so-called periphery. This means that the additional NIS 60,000 subsidy he is offering is available only where relatively few families want to live.
NOTHING IS intrinsically new here. Similar periphery-centered solutions have been tried before. Very cheap land was offered for development years ago – in both the North and South – yet nobody rushed to snap it up. Moreover, higher subsidies might paradoxically raise prices even in the periphery because they embolden developers to ask for more, since prospective purchasers presumably have more at their disposal.
Any program that could stimulate the population dispersal that Israel sorely needs would be an indisputable blessing. Experience shows, however, that generally only families already resident in peripheral townships, and living there in rented accommodations, take advantage of more generous housing credits in order to become homeowners.
The bottom-line status of such communities remains unaltered. Towns that cannot hold onto their own younger generation are in any case unlikely to attract migrants from central Israel.
There’s a reason why most of Israel’s population crowds into the area between Hadera and Gedera. That’s where the jobs are to be had and consequently where cultural and commercial life thrives. To attract population beyond these bounds, sought-after jobs must also meander to far-flung locations. Alternatively, employment opportunities must be made more accessible for inhabitants of outlying areas.
THERE ARE only two ways to burst the real-estate bubble and make more homes less expensive. One is to offer more housing where the buyers are and where they wish to remain – in the Central region. This means even higher high-rises in already over-congested sprawling metropolises, along with cheaper land precisely where market forces make land prohibitively more expensive. This cannot be the reasonable option.
The other approach is indeed to encourage population dispersal – but not through handouts to buyers. Remote locations can be brought closer to the center via improved transportation infrastructure. Quality-of-life disparities are more intimidating than physical distances but won’t disappear until physical distances shrink.
Until it takes less time to reach Tel Aviv from Yeroham and Yokne’am, they won’t be property-market favorites.