Anyone following the news over the past few weeks might think the only issue on Prime Minister Benjamin Netanyahu's mind is a nuclear Iran. But attack or not, Netanyahu's supporters will vote for him on election day. If there's an issue that really worries him, it has to be something that could actually unseat him, not Iran.

From the Labor Party to celeb-cum-fledgling politician Yair Lapid to the remnants of Kadima, politicians have openly yielded to Netanyahu on security. Meanwhile, however, they're battering him on the social and economic fronts. If there's a hot-button issue that could indeed topple the Netanyahu government, it's the anger over the incessant increase in housing prices.

Last year's social-justice protest movement was driven in no small part by the cost of housing. Netanyahu, assisted by the Bank of Israel, reacted by launching a series of steps designed to keep prices in check. These included attempts to increase supply by releasing state land for development, and expediting building permits.

Steps were also taken to depress demand by raising the cost of mortgages and using taxes as a means to curtail the purchase of properties for investment.

Brief impact

Nothing helped. Prices steadied somewhat in the second half of 2011, even dropping in some areas. But an analysis by the Bank of Israel showed this to be a response not to moves by the government, but rather a delayed reaction to the Bank of Israel raising its benchmark interest rate.

Since then, if anything the situation has gotten worse. Mortgage borrowing is up and the deal flow in real estate is even higher, with a concomitant rise in prices.

The semi-annual report issued by the Bank of Israel, based on numbers supplied by the Central Bureau of Statistics, shows a 2.2% increase in prices, compared with a 1.4% drop in the second half of 2011.

Realtors and contractors claim that people waited for 18 months for the anticipated drop in prices, and were disappointed when it didn't happen. At the same time, the cost of rent kept creeping upward. Potential buyers finally decided to go ahead, despite costlier mortgages.

In contrast, economists and other financial experts prefer to blame the rise in prices on declining shekel interest rates, as well as the unprecedented low interest on mortgages, especially those linked to the cost-of-living index.

A further reason, which applies to the well-off, is the loss of confidence in the stock and bond markets - an increasing trend. The growing feeling that financial markets only benefit professional traders is driving investors seeking security into the real estate market.

For these investors, purchasing a home is literally placing one's money under the mattress. Even with returns of 2% to 4%, these are at least positive, and not lower than returns on bank deposits or from mutual funds invested in government bonds.

In many cases, according to numerous articles in the financial press, investors are worried that savings for pensions will not supply the guaranteed yields. They are therefore turning to real estate as investments that will guarantee a future cash flow, as an alternative to pension income. The return of the ruling allowing tax-free sales of investment properties four years after purchase has also contributed to a state of affairs in which housing prices are well beyond most people's reach, and creeping upward.

That this issue weighs heavily on Netanyahu's mind can be heard in the words of Professor Eugene Kandel, head of the National Economic Council, located in the Prime Minister's Office.

Builders are threatened

In a recent interview, he stated that "the government is concerned that housing is unaffordable and is thus determined to take further drastic steps to reduce housing prices. These may include bringing in developers from abroad for construction of large-scale projects, as well as mobilizing external funding. We cannot dictate prices to local developers, but we can increase the competition as a way to reduce prices".

These strong words, sounding almost like a threat to local developers, indicate anxiety in the Prime Minister's Bureau. This sense of urgency is justified, since further increases in housing prices may re-ignite the social protest movement, affecting even hardcore Netanyahu supporters. A politician from the Likud or another centrist party who focuses their campaign on housing issues may be the only threat to Netanyahu's leadership.

But can Netanyahu - or, for that matter, Finance Minister Yuval Steinitz, Housing and Construction Minister Ariel Atias, and Bank of Israel Governor Stanley Fischer - really bring about a reduction in housing prices, a mission in which they have so far failed? Fischer cannot raise interest rates, the only effective tool that might work, since the economy is slowing down and such a move will lead to a recession. It is also politically unfeasible to tamper with mortgages as financial instruments, since this will hurt young couples.

In an interview last week, Fischer stated that such steps may be taken if prices continue to rise. However, unlike Netanyahu, the governor does not favor a drop in prices, since this will financially destabilize banks, contractors and recent purchasers. This is exactly what happened during the real estate crises in the United States, Ireland and Spain. Fischer has repeatedly attributed financial crises to bursting housing bubbles.

Nevertheless, housing prices are not doomed to rise continually. Politicians also need luck. Even if prices continue to increase for a while due to low mortgage rates and a lack of investment alternatives, Netanyahu may benefit from the powerful market forces leading to a slowdown.

All analysts now predict a 2.5% annual growth for the Israeli market. This has already affected the labor market, with a projected 8% unemployment rate. Most people already lack the funds required to purchase in desirable locations, and few will have the confidence to take out large mortgages equaling 10 years of earnings. Bank of Israel analysts report that construction starts greatly expanded during the last two years and will peak in 2013, just as the need for more housing will fall.

This increase in supply, along with the drop in demand due to the slowdown, may give Netanyahu a victory in his quest to reduce housing costs. But this may only work in the longer term, and not in the next elections.