'Affordable housing?' Not a word about it in Torah

Yair Duchin evidently has absolutely no patience for the term "affordable housing." An economist by profession and owner of a real estate consultancy, he pricks the bubble of theories that housing prices became inflated.

He also has nothing but scathing words for government concepts of lowering housing prices. Clearly somebody hasn't thought things through, he says.

"People think that the Torah says the state should supply young couples with cheap apartments in central Tel Aviv. I looked. What can I tell you? I couldn't find it," says Duchin, also a lecturer at the Hebrew University of Jerusalem.

The whole issue of affordable housing is a red flag to Duchin.

"Could somebody explain to me this attitude of, 'I want an apartment in central Tel Aviv and you have to give me one cheap?' What is this idiocy?" Duchin rails. "You want apartments? Go to places you can afford. I would also like a new 4X4 vehicle for NIS 50,000. So what?"

Yet the Israeli government reached the conclusion that housing prices need to fall. What do you say about that?

Duchin: "Mostly, it's populism and partly, it's based on mistakes in understanding the way things are. The populist part is lowering apartment prices. Does Housing [and Construction Minister Ariel] Atias want to lower the property value of 1.7 million households in Israel, just to gratify tens of thousands of people who want to live in central Israel? Does he understand what that means? What about the fact that these apartments serve as collateral backing mortgages?

"The government keeps harping on the problem of the amount of land [available for development], and that's where the mistake comes in. I tell you here and now, there is no problem of land in the State of Israel. That's simply not true."

Elaborating his point, Duchin points out that as long as housing outside central Israel sells for less than development costs, nobody will build.

Therefore, when the Israel Lands Administration tries to hawk land in those areas, developers don't bite. Why would they build there knowing in advance they're likely to lose money?

"All that leaves is the center, and there, the ILA doesn't have much it can do," he says.

Are you projecting that Benjamin Netanyahu's reform of the ILA will fail?

"It won't affect housing prices, because as I say, the problem isn't the land," Duchin says. "The reason there's a market failure today is that builders can't roll over the climbing costs of building onto buyers, especially outside the center. Also, the banks aren't helping by demanding 40% equity of buyers, lending only up to 60% of an apartment's cost."

The upshot is that property developers don't want to build "affordable housing," apartments costing up to say NIS 700,000, because they'll lose money, Duchin sums up.

What do you say about claims of a bubble in the real estate market?

"All the complaints about bubbles and insane increases in prices are twaddle, and the media has been paying a role in inflating this phenomenon," Duchin says. "From the end of the 1990s to the present, if anything housing prices have fallen. So these complaints are completely baseless in reality. The recent increase in prices is the result of a persisting shortfall of about 2,000 a year in building starts, which reflects the gap between supply and demand."

Duchin did some calculations, he says, and found that for each "deficit" of 1,000 building starts, home prices rise by about 1%. Therefore, if the annual shortfall in building starts is 2,000, what you get is an average housing price increase of about 2%. In the last quarter of 2008 and persisting into the first quarter of 2009, the market seized up. But it was evident that the market would explode upwards in the second quarter, at least, evident to Duchin.