Peripheral vision

Can the government help the housing market in towns located far away from the big cities? New Housing Minister Ariel Atias presented an idea last week at a convention of the Association of Contractors and Builders in Israel: The state should help residents of outlying areas who bought apartments, he says, to help them repay their mortgages. How much should it help? By up to NIS 500 a month, for monthly mortgage installments of up to NIS 2,500.

The details haven't been worked out yet, so the plan can't be analyzed properly. But that may not be necessary: It is doomed from the outset. Atias' intentions are good. However, the main problem in the real estate market, reflecting one of the main problems in the country in general, is the growing gap between the main cities and the periphery. These days, more Israelis are leaving the latter than moving there, resulting in a demographic shift to the greater Tel Aviv area.

One of Atias' predecessors as housing minister, Natan Sharansky, proposed a similar plan bearing his name and launched in 2001. The situation then was about the same as it is now: Demand for apartments in peripheral towns was very low, and contractors were stuck with large inventories of unsold apartments. Sharansky hoped to encourage Israelis to buy those apartments by offering government assistance. The plan was first launched in June 2001, and the assistance was made available until October, and then extended to the end of that year, albeit with slightly less favorable terms. Sharansky's successors, Effie Eitam and Isaac Herzog, continued offering incentives to apartment buyers in outlying areas, but on a more limited scale.

The original plan essentially divided the periphery into four priority zones, each with its own series of incentives, which totaled tens of thousands of shekels in grants and 25-year low-interest mortgages. But the whole idea failed: Even though more apartments were purchased in the periphery, negative migration continued. The situation in most of the outlying towns today is the same, or worse, than before.

The economic situation of the people who bought apartments under the old plan has also worsened. A study by the Bank of Israel has found that apartment prices in priority areas rose during the period when incentives were on offer, such that a large share of the benefits found their way into the contractors' pockets, instead of assisting the buyers. Even worse, since then apartment prices in those towns have declined, while prices in the Tel Aviv area have risen. In short, the Sharansky plan was bad for the periphery, for the apartment buyers and also for the state.

The problem with that plan and also the one Atias is proposing is that they both perpetuate the problems in the periphery, without properly solving them and without attracting young people there from the greater Tel Aviv area. A young couple that buys an apartment in an outlying town does not "improve" its situation per se and, considering the lessons learned from the Sharansky plan, the couple's situation will actually worsen and will not help improve the local real estate market. Only demand from outside can actually effect change, but these days young urban people see no advantages that justify a move to the periphery.

Atias must realize that today, when an average apartment in Tiberias costs 30% of one in Tel Aviv (compared to 50% in 2002), and an apartment in Be'er Sheva costs 38% of its Tel Aviv counterpart (compared to 52% in 2002) - buying an apartment in the periphery is much easier than in Sharansky's time. Assistance amounting to NIS 500 a month will not convince young people to leave Tel Aviv.

In the first quarter of 2009 the average apartment in this country cost NIS 802,900, up from NIS 766,300 in the last quarter of 2008. The average apartment in Tel Aviv cost NIS 1.283 million in the first quarter of this year, up 5% over the last quarter of 2008. In Jerusalem, the average apartment cost NIS 1.128 million, up 3% over the previous quarter. The highest hikes were recorded in Haifa, where prices in the first quarter of this year were 9.3% higher than in the previous quarter. In the Sharon region, on the other hand, prices were down by an average of 0.5%, to NIS 1.015 million.

While the prices of average apartments rose, the cost of 4.5- to 5-room apartments declined, with the most dramatic price slumps recorded in Tel Aviv: They fell 16.4%, to about NIS 2.087 million. In Jerusalem prices slipped 3.2%, in the Dan region, 4% and in the Sharon region, 6.4%. In Haifa, the prices of large apartments rose 3%, to an average of NIS 1.149 million.