Finance Minister Moshe Kahlon said in an interview with TheMarker on Tuesday that his policies to rein in soaring home prices are going to hurt some people, but he is determined to go ahead despite the criticism. He declined, however, to say whether his goal is to bring down prices or just stabilize them.
Kahlon – who was lauded for bringing down cellular phone charges during his stint as communications minister – has been heavily criticized by voters and some economists for his plans to impose a tax on people owning three or more homes. The goal is to deter property investors from buying homes and to coax them into selling, easing the supply.
“At a time like this, when the government of Israel really is determined to solve the housing crisis with difficult measures – and understands they are painful and difficult – if the government is serious, it needs to do it,” Kahlon told TheMarker. “Within two or three years the problem will be solved, life will return to normal as if nothing happened.”
But asked whether his goal is to bring down home prices, which have skyrocketed since 2008, Kahlon declined to answer with a categorical yes. “I know one thing – that the minute our programs have worked, there will be an impact on prices. I don’t want to make declarations.”
Kahlon spoke as Bank Leumi issued a report on Tuesday forecasting that demand for housing would remain high and the shortage of housing persist in the short term and that prices would continue climbing.
It cited Israel’s relatively rapid population growth, low interest rates, low unemployment, and absence of good investment alternatives to residential real estate. The bank also said buyers are not convinced the housing shortage will end anytime soon, which leads them to buy now at all costs.
Kahlon acknowledged the problem he faces in convincing the public to accept his measures. Besides the proposed tax, which would go into effect next year, Kahlon has pushed hard to implement the Machir L’mishtaken, which sells land to contractors at a discount on condition they pass the saving on to home buyers.
“Let’s start with the fact that most people don’t want prices to go down. People want me to lower the price of homes, but not their home,” he said, smiling. “But we as leaders, where there is a market failure, we have to deal with it.
“We’re addressing the supply side, markets and authorized contractors,” he said, referring to the Machir L’mishtaken program. “Yesterday in Gedera nearly 900 units were auctioned, priced in my opinion not one bit less than a million shekels (about $265,000) each. In Netanya there were 140-130 units – and it will continue. “
Kahlon stressed that the new tax is not a revenue-raising measure but one designed to solve a problem – and at the same time strike a blow against income inequality in Israel.
“I appreciate those who have – and we need to help those who don’t have. It’s against this background that we want to impose the tax on third homes,” he said. “I don’t think they’re all millionaires, but that’s not at all important. The tax is aimed at changing behavior, it’s not to collect tax money – we don’t need the money.”
“I don’t think there’s any other way,” he continued. “I need to stress that we are going with a tax based on quantity, not value. I’ve heard complaints that two apartments in Tel Aviv, one on Rothschild Boulevard and another on Ahad Ha’am, are worth more than three apartments in the periphery,” he said.
“This doesn’t interest us. Someone selling an apartment on Rothschild for 10 million shekels, it won’t be bought by a young couple. We need to concern ourselves with young couples so we’re focused on quantity not on value.”
Kahlon dismissed concerns that in the current overheated property market, the tax might not deter investors and actually have the perverse effect of causing them to raise rents.
“This doesn’t have to happen,” he said. “All told, we’re talking about 50,000 apartments versus 700,000 renters. In other words, we didn’t do a sensitivity study and there’s no reason anyone should be raising rents,” he said.
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