One of the many tent cities in August 2011. Photo: Gedaliah Borvick
In August 2011, thousands of Israelis participated in “tent city” demonstrations against the high cost of living, and particularly the lack of affordable housing. In response to these social protests, Prime Minister Netanyahu appointed the Trajtenberg Committee to address the complaints and to come up with recommendations to rectify the situation.
Two months ago, the Israeli government approved the committee’s housing recommendations and implemented a number of measures, including (1) forcing Minhal, the Israel Land Authority, to sell enough land over the next five years to construct 187,000 new apartments and (2) charging a double property tax (arnona) on all apartments that are vacant for over six months a year.
Let’s analyze the government’s new laws and the likelihood of their success. Thankfully the Israeli population is growing; unfortunately there are not enough apartments being developed to address the housing need. Due to the disparity between the scarce supply and tremendous demand, housing prices over the past half decade rose on average by 40% across the country and even higher in the major population centers such as Jerusalem and Tel Aviv. The underlying reason for this shortage can be traced to Minhal’s historically slow pace of selling government land for development, which was deliberately done to create strong demand, causing land sale prices to rise and, in turn, increasing the country’s land sales revenue. The theory behind the Trajtenberg recommendation is that by forcing Minhal to sell land in bulk, prices for these lots are expected to drop significantly, which will translate into lower end-user sale prices.
Understandably, clients have asked me whether this situation will impact housing prices, and I believe that the answer is “yes” and “no.” In locations such as central Jerusalem where there are very few development opportunities and there are many people across the globe looking to buy, I cannot imagine that prices for well-located units will drop much, if at all. However, in areas outside of the population centers, I can see the influx of new housing units having a dampening effect on market prices.
Now let’s focus on the second new law: double taxation. The government is looking to address the short-term demand for housing by forcing owners of vacant apartments to sell them to users. The government estimates that there are 140,000 vacant apartments nationwide, and that this new tax will trigger the sale of up to 15,000 units per year. I personally expect a much smaller number of units will be sold, and a larger amount of these units will be rented out – which would be a perfectly acceptable result to the government, as their goal is to have these apartments used and not sit vacant.
One important issue is how the authorities will identify the vacant units. All suggestions that have cropped up have flaws. For example, examining electric usage won’t work, as many absentee owners keep refrigerators on, in addition to some lights on timers, thus their electric bills will not be indicative of a vacant apartment. This new vacancy tax will have no effect unless the authorities create a workable means of implementation.
In addition to more owners renting out vacant units on a long-term (one year or longer) basis, I also anticipate that a number of overseas owners will now consider renting out their apartments on a short-term basis between their visits in order to be in compliance with this new law. (As an aside, if you are an owner or potential renter, I would be happy to share with you a list of honest, experienced companies that focus on short-term rentals.)
Gedaliah Borvick is the founder of My Israel Home, a real estate agency focused on helping people from abroad buy and sell homes in Israel. You may contact him at firstname.lastname@example.org. To read previous articles, please visit his blog at www.myisraelhome.com.