Eligible Buyers Turning Down Subsidized Apartments

Once the subsidized apartments program Mehir Lemishtaken are taken out of the equation for September 2018, it was the weakest in the housing market since 2002

Residential properties stand on the city skyline in Jerusalem, on March 16, 2014.
Ariel Jerozolimski/Bloomberg

Eligible first-time home buyers are choosing to buy on the free market rather than participating in the government’s reduced-price Mehir Lemishtaken program. This is due to the uncertainty surrounding the subsidized housing plan, said the Finance Ministry’s chief economist in his monthly housing market review for September.

That month, first-time buyers bought more homes on the free market than they did through Mehir Lemishtaken.

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The average price of Mehir Lemishtaken apartments in central Israel was 1 million shekels ($270,000) below market price in the region.

Outside of central Israel, however, the average savings compared to market price was just 200,000 shekels. This is because home prices are significantly lower in outlying areas, even on the free market.

The sector review found that the third quarter of 2018 was the weakest in terms of home sales since the social justice protests of the summer of 2011. Those protests focused on the high cost of living, in part due to home prices.

During the previous slowdown, seven years ago, buyers sat on the sidelines, waiting to see whether the government would take steps to rein in home prices.

This time, however, the market has been undergoing a continuing slowdown as the government takes steps to push out of the market people who buy homes only for investment purposes, and to advance the Mehir Lemishtaken program.

The chief economist’s data shows that for the third quarter, fewer than 22,000 homes were sold — some 6.5% less than in the second quarter and 20% less than the quarterly average for 2016.

Part of the decrease is due to the Jewish holidays of Rosh Hashanah, Yom Kippur and Sukkot, which happened to fall in September this year. This September there were 5,400 sales, making it one of the weakest months in the past decade in terms of sale volume. The other two were also holiday months.

Once Mehir Lemishtaken transactions are taken out of the equation for September 2018, it was the weakest in the housing market since 2002.

The report focuses on first-time buyers who accounted for more than half of all residential purchases in September — some 2,900 in total, including 700 through Mehir Lemishtaken and an additional 900 on the free market.

The chief economist found that young couples are preferring to buy on the private market due to well-documented problems in the Mehir Lemishtaken program.

These include unknown waiting times between winning the lottery and finding out what developers are actually offering, at which point would-be buyers decide whether to actually buy. There are then additional waits to receive permits to build, the construction itself and the move-in date. The process takes an unreasonably long time, say critics.

The chief economist noted that while nationwide, 30% of the apartments that first-time buyers bought on the free market were new construction, in outlying areas, the figure jumps to between 40% and 45%. This is likely due to the size of the discount in Mehir Hamishtaken construction in the center versus in outlying areas, the report stated.

For example, Mehir Lehmishtaken buyers in Herzliya received a discount of more than 1 million shekels versus market prices, while buyers in Haifa and its suburbs received a discount of about 300,000 shekels, and buyers in Be’er Sheva, Dimona and other towns in the region received a discount of less than 200,000 shekels.

Mehir Lemishtaken apartments have also been criticized for their quality of construction.