Netanyahu - Daniel Bar-On - June 29 2011
Prime Minister Benjamin Netanyahu Photo by Daniel Bar-On
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The tent cities that popped up around the country to protest high housing prices have not ruffled Knesset members' feathers.

The government knows that "either prices will come down or the government will fall," said Knesset Economic Affairs Committee chairman Carmel Shama-Hacohen. Yet cabiet ministers and other coalition members said the issue would not endanger the government or undermine support for Prime Minister Benjamin Netanyahu or his Likud party.

In response to the protests, Netanyahu and Housing and Construction Minister Ariel Atias are expected to propose building 5,000 housing units on state-subsidized land through an existing state housing program.

Under the proposal, these 5,000 homes would be sold to people who meet criteria.

The Finance Ministry is believed to strongly oppose the idea, arguing that the vast majority of people who have bought homes through this program are ultra-Orthodox. The ministry reportedly opposes a plan that would help only one population group, and believes that in any case, 5,000 homes is insufficient.

The state housing program offers relatively inexpensive housing on state land. Currently, contractors pay full price for the land. This proposal would give them a 50-percent subsidy on land to build 5,000 units.

Even without the subsidy, the program provides inexpensive housing by offering smaller, lower quality units and by saving on construction costs by building in bulk.

Under the current criteria, 60 percent of the program's homes are sold to large families, meaning mostly ultra-Orthodox. In practice, however, most of the buildings' residents are ultra-Orthodox.

Senior government sources said the proposal by Atias, from the ultra-Orthodox Shas party, will not really address the housing shortage. It is primarily designed to shore up Netanyahu's coalition and satisfy his ultra-Orthodox Shas and United Torah Judaism coalition partners, they said.

The sources said the program would involve a relatively large government investment given its payoff, and would not solve the housing shortages in the center of the country. Critics have said that by offering subsidized land in the center of the country, the program undermines the government's policy of encouraging people to move into the periphery.

The Finance Ministry supports a different Housing Ministry proposal that would promote building rental units. Treasury officials would like to see the 5,000 units built, but for renters. Rental projects are not generally considered profitable in Israel, and a subsidy on the land may encourage contractors to take the plunge.

Under this plan, developers would have to commit to renting out the properties for 15 to 20 years, and would have to build a set number of smaller - and therefore less expensive - units. The units would be set aside for young couples in addition to large families and could be rented under contracts for up to five years.

Criteria for participation in the rental program have yet to be set, but the Finance Ministry wants them to include broad swaths of the population. But it disagrees with the Housing Ministry over rental prices. As with the current program, the Housing Ministry wants to award the projects to the developer who proposes the lowest rents, but the treasury believes that requiring rent control will relegate the program to failure because rental properties are considered unprofitable.

The Finance Ministry is also concerned that if all the housing units in a project are rented at low prices, they could become "ghettos of neglect and poverty," like other public housing projects. It therefore proposes renting out the units at market prices, but only to people who meet the criteria, since long-term leases are still considered a benefit.

Ultimately, the two ministries are expected to compromise by designating a set number of apartments as rental units.

Prime Minister Netanyahu is also proposing that legislation expediting the approval of housing projects make provisions for rental housing. The legislation is set for final Knesset approval next week.

Yesterday Netanyahu and Shama-Hacohen, the chairman of the joint Knesset committee handling the legislation, agreed to add a clause stating projects must include rental housing and smaller housing units.

"The housing market will understand and quickly respond to the addition of rental housing to the law, even if the tent-city protesters and others suffering from housing shortages don't understand it right away," Shama-Hacohen said.

Finance Committee Chairman Moshe Gafni on Sunday demanded that Netanyahu allocate several billion shekels to build housing to sell to young couples and others qualifying for assistance.

Meanwhile, Yishai (Shas ) threatened a coalition crisis if the government does not present a plan within two weeks to curb housing prices and to provide housing for young families. Yishai said, however, that he preferred a solution instead of a coalition crisis, and Knesset sources said Shas would prefer to press for a housing program rather than leave the government.