Analyzing Israel’s New Housing Plans
Updated: Nov 16, 2021
Ministers Avigdor Liberman (Finance), Ze’ev Elkin (Construction and Housing), and Ayelet Shaked (Interior) recently presented the government’s plan designed to limit soaring real estate prices.
Parts of the plan had already been shared. Last month, the government passed a law expediting Pinuy Binuy projects – where old buildings are torn down and larger buildings are built in their place – by reducing the percentage of apartment owners required to approve the project from 80% to 66%. This revision is expected to help shorten the period of time to complete these urban renewal projects by minimally two years.
In addition, the Mechir Matara – or Target Price Plan in English – was recently restored (it was briefly implemented in 2014) in which thousands of apartments annually will be sold to eligible first-time buyers at up to a 20% discount below market rates.
The government now introduced more measures, and the most relevant component for our foreign clients is that they will raise the purchase tax for investors, restoring the pre-COVID-19 rate which starts at 8% (it was lowered last year to 5% to counter the economic effects of the pandemic). The term “investors” includes Israelis buying a second home as well as overseas purchasers.
The goal of the tax increase is to reduce investor demand, which the government hopes will cool market pricing and make homes more affordable for young couples. The flip side of this tax increase is that by restricting investors, less apartments will be used as rentals, which is problematic as rental demand greatly outstrips supply. By decreasing real estate investments, the supply of rental units will decrease, causing rents to increase – which harms the same target population, young couples, that the government is seeking to assist.
The government also presented a plan to accelerate new construction projects by expediting the process of obtaining building permits. The 4-year goal is to sell state-owned land to construct 300,000 new housing units. Although these plans to increase the number of new housing units entering the market sound promising, we have witnessed similar ambitious goals over the past decade which, for various reasons, have never been actualized.
Over the years, the Israeli government has taken numerous steps to reduce demand by imposing new mortgage restrictions and by increasing acquisition taxes for overseas buyers and Israelis who own multiple homes. These initiatives were met with failure because they did not tackle the underlying and most pressing issue: increasing supply in our housing-starved country. Unless the “supply side” programs are quickly and aggressively implemented to address the scarcity of available housing, merely raising the acquisition tax on purchases will not cause prices to decline.
The best long-term approach to stabilizing prices is for the government to make more land available for development, and design and apply plans to streamline the planning and approval process in order to quickly develop new housing units. With the country’s population expected to double over the next fifty years, we pray that our government officials will be imbued with wisdom and foresight to create and implement smart long-term housing programs that address the needs of Israel’s residents.
Gedaliah Borvick is the founder of My Israel Home (www.myisraelhome.com), a real estate agency focused on helping people from abroad buy homes in Israel. To sign up for his monthly market updates, contact him at email@example.com.