The housing solution

In Tel Aviv, prices are up by 30% since a year ago, and 5% since three months ago.

Last fall, Construction and Housing Minister Ariel Attias (Shas) ceremoniously informed the nation of a new reform he was launching that would, in no time at all, significantly lower spiraling real estate prices by inundating the marketplace with cheap land.
This was to be a facet of Prime Minister Binyamin Netanyahu’s crusade against obstructive red tape, which, he has consistently argued, strangles development projects and inordinately inflates housing costs.
In theory, this all sounded compelling. And the theory’s ramifications extend beyond putting the lid on prices. Presumably the more convoluted and drawn-out the route to winning planning approvals and construction permits, and the more expensive the land, the greater the temptation to find shortcuts. It becomes inviting to simplify things via graft and favoritism. And thus, were efficient red-tape-cuts instituted into the system, the thinking goes, this in itself would constitute a potent disincentive for corruption.
The problem, of course, is that the reverse logic is as cogent. Where less control is imposed, the opportunity for mischief is all the greater.
In his reformist offensive, Attias announced large-scale sales of Israel Lands Authority plots sufficient for the construction of thousands of housing units. This, he promised, would radically cool the feverish market. Land, after all, is the costliest component of real estate prices. If the market were swamped with inexpensive lots, prices were bound to tumble. Attias predicted that by the beginning of 2010, housing price-rises would be halted, and that they would dramatically drop by year’s end.
UNFORTUNATELY, THIS rosy forecast has not panned out. In fact, the very opposite has occurred. Housing prices are going through the roof.
Official government statistics released Tuesday indicate that the prices of four-room apartments (Israel’s most popular size) rose by a national average of nearly 17 percent in the first quarter of 2010, compared to the first quarter of 2009, and by over 4% from the final quarter of 2009. The figures are based on data from 14 cities countrywide. In Tel Aviv, prices are up by 30% since a year ago, and 5% since three months ago.
Exuding never-say-die determination, Attias, also on Tuesday, published tenders for the sale of land sufficient for 3,000 housing units, in a bid to push prices down nevertheless. He insists he is on the right course, but that the reform process is slow and needs to be given a chance. In the past eight months, Attias has put on the market plots for 21,600 units.
Bank of Israel Governor Stanley Fischer acknowledged to the Knesset Finance Committee on Wednesday that “a problem does exist,” though he isn’t yet calling it a bubble. “We must avoid complacency,” Fischer stressed. “There is a relatively rapid price rise, which means that we might have to take steps… I can’t precisely define when a bubble forms, but we are examining the issue of interest rates in dealing with this problem.”
As Fischer was intimating, low interest rates entice buyers to take out sizable mortgages and increase demand, consequently hiking prices. Interest rates, however, are not lightly tampered with, especially as raising them would artificially strengthen the anyway-overvalued shekel at a time of dangerous global volatility (i.e., the Greek/Euro-zone crisis), thereby hurting exports and possibly increasing unemployment.
ANOTHER REASON the Attias land sales failed to achieve their objective was that most of the land the minister found to advance his reforms lay outside high-demand areas. In real life, families in search of flats in metropolitan Tel Aviv are quite unlikely to opt for Yeruham instead.
Attias has now begun to partially correct this inherent flaw, but thefact is there isn’t a great deal of public land available in lucrativeareas.
The question, therefore, should be how to bring Yeruham closer to TelAviv’s opportunities, and thus make more remote (but affordable)residence more viable and less forbidding.
And the answer lies in other, seemingly mundane solutions likebelatedly pulling Israel’s rail links out of the late 19th century andbringing them into the 21st. Improvement in public conveyances of allsorts would shrink the distances and demolish the psychologicalbarriers to dwelling that little bit further away from the country’seconomic and cultural hubs.