The buyers are back / A vote of unconfidence in Israel's government
The Netanyahu government, under which home prices have increased 40%, promised to flood the market with homes and to lower prices, but instead it flooded the public with words, and the fruits of its labor are unlikely to be seen in the next few years − since its labors amount to next to nothing.
Sometime in the last quarter, or possibly sometime before then, some 19,000 families − most of them young, first-time buyers − sat down and decided that this was it, they were going to buy a home. It’s clear this wasn’t a trivial decision. They clearly spent hours crunching the numbers in order to figure out how much they could afford. They clearly called on relatives and friends who “understand” the market to help them make the final decision. And it’s also nearly certain that they had a few sleepless nights on the way. Ultimately they made a decision, and jumped in.
Why did they do this? Don’t they see prices are high, that mortgages are long-term financial traps and that things are very uncertain nowadays? Of course they do. Most of them probably signed with their hands shaking, but they did it nonetheless. So why did they do it? They apparently reached the conclusion that prices would continue to increase, and that they were better off buying a home now since in the future things would only be harder. This was the expression of their lack of confidence in the Netanyahu government.
That they’re making a major mistake − that’s one thing. But the government’s role in this mistake is a serious matter in and of itself. This government, under whose reign home prices have increased 40%, promised to flood the market with homes and to lower prices, but instead it flooded the public with words, and the fruits of its labor are unlikely to be seen in the next few years − since its labors amount to next to nothing.
The Israel Lands Administration reform is stuck. The Planning and Construction Law reform is also not advancing. Most of the recommendations of the Trajtenberg Committee, which aren’t considered revolutionary by any means, have not been implemented.
It’s hard to find a basis for the promises by Prime Minister Benjamin Netanyahu and Housing and Construction Minister Ariel Atias to cut prices now, when all their actions are designed to shift the market in the medium- to long-term, if at all.
One government action was supposed to have an effect in the short term, and that’s Finance Minister Yuval Steinitz’s plan to cool down the sector that many believe to be responsible for the bulk of the price increases: real estate investors. The tens of thousands of people who bought apartments for investment purposes in 2009 and 2010 made a significant contribution to the price increases at the time, and the plan’s goal was to give them tax incentives to sell and disincentives to purchase more homes.
And indeed, that plan proved its effectiveness. Since it was launched in May 2011, investors began retreating from the market and now account for only 23% of all purchases, down from 30% in 2010. Yet last month, due to pressure by Knesset Finance Committee head Moshe Gafni, these measures were halted. The State Revenue Administration has warned that this will encourage investors to jump back into the market.
With this kind of government action, whose main result was contributing to the exasperation of potential buyers, there’s nothing left to do but wait until the next round of real estate data is published, showing prices are back on their upward trajectory − and to wait for the Bank of Israel to crack down on mortgage lending yet again.