Israel’s most pressing economic problem? Skyrocketing housing prices are definitely up there. And what’s the country’s best-known vehicle for raising money from American Jews? Israel Bonds, of course. So why not use proceeds from the bonds to help finance low-cost housing?
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That’s the idea behind a new proposal currently making the rounds, the brainchild of a team of U.S. experts who have partnered up with the recently established Affordable Housing Center at Tel Aviv University Law School to help make it happen.
On a jam-packed trip to Israel this week, these experts met with senior economists at the treasury and Housing and Construction Ministry, a host of Knesset members, and many others, hoping to win over hearts. If the private sector could be persuaded to invest in affordable rental housing projects in New York, they argue, then it can be persuaded to do the same in Tel Aviv – with the right incentives.
“This is about using the relationship with Diaspora Jewry to raise money through an existing system,” said Marc Jahr, a member of the team and former president of the New York City Housing Development Corporation, responsible for the city’s affordable housing projects. “Israel Bonds are widely recognized as a solid investment, and the idea is to use the proceeds to fill in the gap between the costs of construction and the amount of debt that can be secured.”
According to the proposal, the Israeli government would raise $100-$200 million through a special issue of bonds whose proceeds would be used to underwrite and lend needed funds for affordable rental housing projects.
The state raises about $1.2 billion a year through Israel Bonds. Since the bonds were created as a financing vehicle in 1951, the government has used them to raise more than $36 billion. Never before, though, has the government approved a special bond issue for a specific cause.
“What we see is that young people don’t want to give generically anymore, so the idea of just buying a bond for general infrastructure isn’t going to get anyone’s attention,” noted Steven Weiss, another member of the team and a partner at a New York law firm that specializes in affordable housing and community development. “The idea that there’s a cause behind the use of the bond proceeds is something that, from a marketing standpoint, would do really well back home.”
Jahr said Israel Bonds were not the only vehicle being considered for raising funds to support affordable rental housing projects in Israel, but that it was a natural choice because of its proven track record.
A lack of available finance is considered a key impediment to creating an affordable housing market in Israel. But local experts point to other obstacles that are no less significant, among them the government monopoly on land and the huge bureaucracy involved in obtaining permits.
A report published this week by the Bank of Israel found that while housing had become less affordable to buyers between 2004 and 2012, it had not become less affordable to renters during that period. That was because the rate of increase in net disposable income over that eight-year period was able to keep pace with the rate of increase in rental prices.
The American experts said they planned to continue meeting with Jewish leaders and philanthropists once they returned to the United States, to further promote their idea.