Housing woes

Careless politicking could throw our entire economy off balance.

Home garden (photo credit: URIEL MESSA)
Home garden
(photo credit: URIEL MESSA)
The notion that some thorny problems, such as Israel’s housing woes, have no easy solution – perhaps no fundamental solution – is not one that politicians relish imparting, certainly not on the eve of an election.
But more often than not, promising facile cure-alls is nothing short of misleading. It is not difficult to find fault with nitty-gritty facets of official procedures and guidelines, as all state comptrollers do. When dealing with broad governmental strategies, however, their reports always prodigiously benefit from hindsight.
In fact, though, while palliatives to the housing shortage are possible, comprehensive overhauls may not be simply attainable. That said, we cannot realistically expect candor from political candidates. Their assumption is that economics are above the heads of ordinary voters. The result is populism, even demagoguery.
Nonetheless, the fact remains that Israel is a tiny country where the demand will always exceed supply.
As the Jewish people’s homeland, many homes here are purchased by overseas Jews seeking insurance, especially in times of rising anti-Semitism and terrorist predations.
We cannot and should not oppose this, although it perforce raises demand and thereby inflates real estate prices.
Too boot, there is demand from immigrants – both newly arrived and already-resident – as well as from young couples buying their first homes.
Instant rabbit-in-the-hat magic promoted by some candidates is essentially irresponsible.
Enough compelling criticism has been heaped upon Yair Lapid’s zero-VAT bill for given first-time purchasers.
Most experts agree that this would only further engorge the housing bubble, be irrelevant for most families and constitute a colossal squandering of taxpayer money.
Other populist proposals, such as re-zoning agricultural land or massively freeing up public holdings, could destabilize the economy, foremost the banks and financial markets – an outcome that would hurt all social strata.
But even such approaches are hardly likely to do the trick, because, despite what some politicians pretend, Israel is not an island. Israel is deeply affected by global economic swings and it cannot operate as if it enjoys immunity to external crises.
Like it or not, our housing market is directly affected by international currency fluctuations – which cannot necessarily be foreseen and over which no government can claim to exercise absolute control. Most notable is the credit crunch of 2008 that sent all economies reeling and whose aftereffects plague us even now.
Rock-bottom interest rates abroad led investors and speculators to shift their assets to wherever they could earn even marginally higher returns. Slightly higher Israeli interest rates invariably lured overseas depositors.
This in turn led to the overvaluing of the shekel.
A strong shekel is not a source of national pride. It cuts deeply into the competitiveness of exporters, costs them markets and could result in insolvencies and layoffs. To avoid such dire consequences, especially joblessness, the Bank of Israel was forced to reduce its key interest rate to the unprecedented 0.1 percent.
But low rates trigger their own vicious cycles. Local account-holders lose by keeping their savings in the bank. Having no alternative for conservative investments, many choose to buy a second apartment. This raises demand, and prices, too.
Young couples, lured by unprecedentedly low interest rates, risk taking out huge mortgages of the sort never previously accessible in this country. The availability of such mortgages at extraordinarily tempting rates creates yet another surge in demand that, inevitably, further raises prices.
Any politician not courageous enough to admit this core feature of the housing bubble is being disingenuous, and this is putting it mildly. The suggestion that all can be blamed on given individuals, or that it is something that can be instantly corrected by clever quick-fixes, is patently one-dimensional and deceptive.
The industrialized world, almost without exception, is in the throes of economic distress – admittedly of varying severity. We cannot escape the fallout. The best we can do is not allow the injurious interaction between rising real estate prices and historically low interest rates get entirely out of hand. Careless politicking could throw our entire economy off balance.