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Double Taxation on Ghost Apartments

Over the past half decade, there has been talk to double the property taxes (called “arnona”) on the estimated 10,000 “ghost apartments” or secondary residences in Jerusalem. A ghost apartment is defined as a property that sits vacant for at least nine months a year. These ghost apartments have understandably generated resentment from local residents who claim that these empty units reduce the city’s already limited housing supply. Two years ago, the Knesset Finance Committee approved this law and in January 2016, the Jerusalem Municipality began to implement this law.

 "Ghost Apartments" in Mamilla, Jerusalem. Courtesy: Wiki Commons

Goal

The goal of this new tax is to encourage owners of vacant units to rent out their apartments. Over the past few months, Mayor Nir Barkat has written to these apartment owners, requesting that they rent out their properties to young families. He then selected six management companies to reach out to these owners and encourage them to rent out the apartments. As Barkat recently stated, “Young people are the ‘oxygen of the city,’ and we are working all the time to attract young people and young families to Jerusalem. The entry of thousands of vacant apartments into the market will dramatically increase the supply of apartments for rent to young people, and will also lower rental rates in the city.”

Enforcement & Expectations

The government has spent considerable time trying to solve the question of enforcement. Their solution to determine vacancy has been to monitor electrical and water usage. As you have probably surmised, property owners who keep a refrigerator on and set their lights on timers, plus have their property managers run the water for ten minutes a few times a month, can easily overcome both of these enforcement hurdles.

 King David's Crown in Talbieh, Jerusalem. Courtesy: Gedaliah Borvick

Furthermore, we do not believe that this law will generate any meaningful change to the status quo because the vast majority of owners of these relatively expensive homes would rather part with an extra few thousand dollars a year than to rent out their apartments. In addition, most apartment owners who visit Israel sporadically will not rent out their homes when they are overseas, as very few tenants would lease an apartment on condition that they move out every time the landlord visits. However, it will be interesting to see how many of these owners will consider renting out their apartments on a short-term basis between visits in order to be in compliance with this new law.  

Nir Barkat’s quote about young couples being the “oxygen of the city” is a cogent and important statement. However, punitive measures such as double taxing unoccupied apartments, though allowing politicians to proclaim that they are addressing the housing crisis, smacks of populism. If the municipality is serious about attracting young motivated families to Jerusalem, they may want to consider allocating housing grants or building affordable housing, both of which can be distributed based on criteria deemed consistent with the city’s objective, such as achieving a minimal level of education, and/or completion of army or national service.

Gedaliah Borvick is the founder of My Israel Home (www.myisraelhome.com), a real estate agency focused on helping people from abroad buy and sell homes in Israel. To sign up for his monthly market updates, contact him at gborvick@gmail.com. 

2016-01-17 16:32:25



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