While we have been witnessing the “Arab Spring” wave of revolutions in over a dozen Arab countries, Israel has been experiencing a “Summer of Discontent.” Starting with the Cottage Cheese Revolution, reflecting Israelis’ frustration with rising food prices, continuing with the doctors’ strike which has dragged on for months, and now the tent cities sprouting up across the country to demonstrate cost of living issues and particularly the lack of affordable housing, the common man is standing up to protest the sense of inequitable wealth distribution.
Since 2004, Israel has been one of the world’s strongest economies; during this period its average annual economic growth rate has been 4.5% and unemployment has declined from 11% to around 6%. But public displeasure with the rising cost of living and lagging salaries is mounting. Although many of the protestors’ demands are too radical to implement, Netanyahu has created a social-change taskforce to meet with the protestors and recommend concrete solutions to their grievances.
Let’s focus on Netanyahu’s response to the housing crisis.
At the end of July, Prime Minister Netanyahu presented a revolutionary program that had been two years in the making, as he recognized prices were too high – housing prices have risen by 40% since 2007 – even before this summer’s populist uprising. Netanyahu explained that soaring prices stemmed from a shortage of new housing units. This lack of new development is due to the Israel Land Authority’s (ILA or Minhal) extremely slow pace of selling government land for development, which was deliberately done to create strong demand, thus raising land sale prices and increasing the country’s revenue.
Summarizing his plan to repair this problem, Netanyahu said that the correct government approach should be to combine “the twin pursuits of a free market and social justice.” By significantly reducing state revenues from the land sales to the tune of hundreds of millions of shekels, the greater good of societal harmony can be achieved.
Netanyahu’s program to solve the housing market crisis includes the following initiatives:
• Reforming ILA to remove restrictions on residential planning and on sales of land for residential construction.
• A 50% discount in land prices for constructing apartments when contractors compete to offer lowest prices to buyers, with preference given to young couples and recently discharged soldiers.
• Construction of apartments for long-term rental, with steep land discounts for contractors offering lowest rental prices.
• Construction of 10,000 new student dormitory units, with a secondary benefit of boosting residential supply by vacating thousands of city center apartments previously used by students.
• Immediate 50% rail and bus discount for university and college students, to encourage living outside city centers.
• Limiting exemptions on municipal taxes (“arnona” or what is commonly called “real estate taxes” in the US) for the over 140,000 vacant apartments and offices across the country, as an inducement to put these properties on the market for either sale or rent.
Netanyahu expects these reforms to result in 50,000 new housing units being put on the market within 1.5 years. Now that the Knesset has passed this plan, let’s hope that the savings get passed on to the proper recipients and that the country finally rids itself of the red tape which has historically limited residential construction.
I believe that these new laws will not initially affect apartment pricing for overseas buyers but, if properly implemented, will create an influx of residential units which should help curb the escalating housing price trend.
“My Israel Home” is a real estate agency focused on helping people from abroad buy homes in Israel. You may contact Gedaliah Borvick at firstname.lastname@example.org. To read previous articles, please visit his blog at www.myisraelhome.com.