Would Affordable Housing Kill Property Values in Israel?

Tel Aviv-Jaffa study evaluates property owners' concerns, ahead of affordable housing plan which would severely limit potential buyers.

Are you in favor of affordable housing? If you are, you may want to consider this. If you want to build "socially correct" apartments on your own property, the land's value could fall by 28% or more, found a study by the Tel Aviv-Jaffa municipality.

The developer will also likely face impediments in the form of objections by neighbors and others, not to mention possible damages claims..

The Mandarin Hotel.
The Mandarin Hotel.

Of course, it's entirely likely that you'll be in this situation against your will, should city hall or the government decide the housing project planned for your property should contain affordable housing.

The study, which TheMarker has obtained, examined land in Tel Aviv north of the Yarkon river, near the Mandarin Hotel, between the Sde Dov airport and the Glilot Junction. Under the 3700 master plan, some 12,000 units are planned for that site, including 1,000 affordable housing units.

The original plan was to build affordable housing on some plots that are privately owned.

The property owners objected, claiming their land would lose value if it were districted for affordable housing. The plan was then revised to district only city-owned land for affordable housing.

The municipality's research proved the property owners were right. The city's calculations showed that the value of the property would drop by 28% if it were designated only for affordable housing. This figure was based on the city's plan for affordable housing, which severely limits who the potential buyers are, and relies on assumptions that these buyers would be from lower socioeconomic classes than people who buy on the free market - especially in such a desirable area.

Sue the city?

If such projects were forced on property owners, they could demand compensation from the city for the loss of property value.

The loss would vary, depending on the restrictions placed on the affordable housing projects. Currently, there are no official criteria for affordable housing projects in Israel, meaning restrictions could vary between cities and projects.

In the case the Tel Aviv municipality examined in the study, the master plan set limits on apartment prices and subsidies, both on rental units and units for sale.

The criteria for affordable housing that the Knesset Finance Committee recently approved require a discount of up to NIS 200,000 per apartment in this development. As for rental housing, the city determined rent should be no more than 25% to 30% of the disposable income of a household in the seventh income decile. This works out to about NIS 3,600 to NIS 4,300 a month for the 10 years the apartments would be rented out. After that period, the developer would be allowed to sell the apartment on the free market.

The units would be limited to a maximum of 80 square meters each. The city's proposals would limit subsidized renters to people who have been Tel Aviv residents for the past five years, who are under 45, and who are in the seventh decile or lower. Buyers would have to pay a down payment of at least 40% of the purchase price.

Economists determined most developers would prefer to sell the affordable units, as opposed to renting them out. Renting out the apartments would mean a 25% discount for developers, while the NIS 200,000 off the purchase price is only 16% off.