Shahar Sery has had some good reasons to smile lately. Despite the coronavirus and a long stint without a job, he recently married his girlfriend Coral and was taken on as an electronics engineer for a multinational corporation. According to the Central Bureau of Statistics, his household income puts him and his wife among the top 10% of income earners.
But that’s where the smiling stops. “My wife and I both earn a decent salary and we don’t waste money – we manage to save 40% to 50% percent of our income – and still, buying a home looks like an unattainable dream for us,” he says. “No matter how I look at it, I realize that I won’t be able to become a homeowner, at least not in any place that I’d really like to live.”
Sery pays 5,000 shekels ($1,462) a month in rent for a 60-square-meter apartment in central Tel Aviv. He’s been living there for eight years, since he started his university studies. He has stayed there mostly because of the proximity to good job opportunities.
“I look around and I see a generation that’s ready to enslave itself to a huge mortgage for 4 and a half rooms in Sderot or Be’er Sheva and I just don’t get it,” Sery says. “How can so many people manage a monthly mortgage payment of 7,000 shekels when their income is not very far from that? The government has to intervene to correct this distortion and our generation has to stop fueling the illusion that keeps the prices soaring ever higher.”
When he does a Google search to see what sort of homes are available for 1.5 million shekels, it’s an exercise in frustration: “In the expansion section of my kibbutz, which is right on the border with Gaza, a small detached house costs 2.3 million shekels. The other alternatives are a 19th-floor apartment in Hadera [a city between Tel Aviv and Haifa] or a house in Migdal Haemek [a city in northern Israel]. That’s far from the kind of housing I wish for myself and my children, and I don’t want to compromise.”
Sery speaks for a whole generation that did everything by the book: community or army service, travel, a bachelor’s degree, a first job, second job, wedding, thoughts of a graduate degree and buying a small new car – and still, without substantial help from his parents, he can’t afford to buy a home he’d want to live in.
Nearly a decade after the social justice protests in the summer of 2011 and 7 billion shekels in government aid to subsidize tens of thousands of young couples through the Mechir L’Mishtaken (Buyer’s Price) program, the dream of home ownership seems more out of reach than ever for young Israelis. Housing prices keep rising, building starts are falling due to the pandemic, financing options are shrinking and the high cost of living makes it hard to save. In the absence of a substantial inheritance or help from parents, acquiring enough capital seems virtually impossible.
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27 years for a home
According to Tel Aviv University’s Alrov Institute for Real Estate Research, a young couple with an average monthly income of 20,700 shekels (based on the average income for salaried workers in June 2020) would need to work 27 years to buy a standard four-room home. A decade ago, it would have taken 24 years.
How long will it take until the house is owned outright by the couple and not jointly with the bank? “If the same household could dedicate 100% of its income toward the paying off a mortgage, then 8.2 years might be enough – assuming that they don’t eat or drink or send their kids to preschool,” says Prof. Danny Ben-Shahar, director of the Alrov Institute.
The three main factors that determine the ability to purchase an average four-room home are home prices, household income and interest on the mortgage, says Ben-Shahar. In order for a family not to be saddled with a monthly mortgage payment exceeding 30% of their income, they would need to put down close to 900,000 shekels. A decade ago, that figure was 700,000 shekels.
“For our generation, buying a house to live in is something reserved for the wealthy and their children,” Sery says. “A lot of people I know are buying an apartment for investment and waiting for its value to go up. But by doing so they’re part of the system that wants prices to rise, while at the same time they’re paying off debts to the bank.”
Ben-Shahar says low mortgage rates are acting as an incentive to home buyers. “Since the start of the decade, interest rates have dropped sharply, from 6% to just 2.5% to 3%, which means that many more people can take out a mortgage. It’s creating demand that’s outstripping supply, and affecting housing prices. On the other hand, the low mortgage rates have halted the steep decline in the ability to purchase a home.”
“Prices in Israel are disconnected from reality,” says Chen Tamir, 31, from Tel Aviv, who left his job as a broker a year and a half ago to work as a parliamentary aide to lawmaker Orna Barbivai. “A few years ago I was a member of an Israeli UN delegation and I became friends with colleagues from Norway, Spain and the U.S. Now they all own their own homes, even though they work in the public sector, while I’m far from being able to make the financial leap that they’ve made in this time.”
A survey by the consulting and accounting firm Deloitte shows why. Of the 23 countries it looked at using 2019 prices, Deloitte found that it would take 104 average monthly salaries in Israel to buy a small 70-square-meter apartment, double the amount as in Belgium and Portugal.
Tamir’s parents didn’t come from well-off families, but he says that by his age, with hard work, they were in good financial shape. Unlike them, he hasn’t been able to save much.
“I work hard and have a good standard of living. But in the current political reality, even when you work hard, the government doesn’t ensure the basic ability to afford a house,” he says. “The government needs to adjust itself to the generation that is working hard, yet finds its money is worth less. It has to stop selling us the illusion that we can purchase a home on our own, without serious intervention in the market.”
“The main problem for young couples is raising the capital to buy a home,” says Shachar Karmon, CEO of Prime Mortgage and Financial Consulting. I’d say that 85% of the young people who consult with me before buying their first apartment have significant financial support from their families. Otherwise, they wouldn’t have a chance. Perhaps 5% to 7% come with money they saved working in high-tech or similar jobs.”
Young couples’ need for substantial initial capital has grown swiftly over the last decade. “Ten years ago, young people were also getting help from their parents, but in much lower numbers,” says Karmon. “Not because the families couldn’t help, but because couples had the alternative of managing without their assistance – housing prices were lower and generous financing options were available. You could get a 90% mortgage and take much less money from the family.”
Karmon also points out that while wages have risen during this time, the cost of living in Israel has gone up significantly, as has consumption – and with that, the difficulty of saving money.
Even Liat Tzalel-Master, 30, who is married, has a child and works at a large tech company, feels like she is fighting the statistics. “My husband and I work hard and earn far above the average income, but we both come from families that can’t provide us with much capital to buy an apartment. It’s all our shoulders,” she says.
She and her husband have been saving, but with rent and preschool costs coming to at least 10,500 shekels a month, they haven’t accumulated nearly enough for a down payment.
“We left Tel Aviv in 2015 for several reasons, one of them being that we believed we could lower our expenses and save more outside of the city. But the truth is that we haven’t been able to save more than we did when we lived in Tel Aviv, even though our salaries have almost tripled,” she says.
Tzalel-Master says that although rent in a moshav in the Sharon region is lower, having children means you need two cars, and the cost of education isn’t much different. “The longer we live on the moshav, the more we realize that this is the lifestyle for us, but it only highlights that our chance of buying a house or a lot on the moshav for 10 million shekels is basically nil. The only way for us to get the quality of life we dream about is by renting.”
Karmon worries that these changes have given rise to deep-seated frustration among young families. “A couple that manages to save 3,000 shekels a month – and that’s no easy feat – can see that it won’t necessarily be enough to buy a home with, and the mental strain of this has significant impact. Saving 36,000 shekels a year, when you look at the real estate market, is just a drop in the bucket. This affects young people’s motivation to buy a home, and as a result, more and more of them quit saving for it. Even when they do save money on a regular basis, they spend it on trips abroad.”
Amit Kaminsky, CEO of AMG Mortgages, takes a different view. “It has a lot to do with desire and proper decision-making,” he says. “Unlike in the past, people today aren’t willing to compromise on their residential space, even with the first apartment they buy. Right now, every young couple wants to live in a big new apartment with an elevator and parking in an upscale neighborhood. The simple truth is that not everyone can afford it. You have to start from the bottom and work your way up.”
He says that when he was just starting out, he worked 12 hours a day, seven days a week. “Young people today work from 9:00 A.M. to 6:00 P.M., they’re not familiar with the concept of overtime, and they spend more – they eat in restaurants, they drive fancier cars, they go out and spend most of the money they earn.”
Tamir, for one, would beg to differ, noting that he works 12- to 16-hour days and doesn’t have the free time to spend that kind of money even if he wanted to.
Even Kaminsky acknowledges that “it is really impossible to save 800,000 shekels. Generally, those who come in with substantial capital have gotten at least two-thirds of it from their parents .... A couple that can come in with this amount will go for a home that costs 2 million shekels, maybe a little more.”
Kaminsky says a couple that earns 15,000 shekels a month can buy a home, albeit a basic one. “It could be a three-room apartment in Petah Tikva, Rehovot or Netanya in a 60- or 70-year-old building without an elevator, possibly without parking either. Or, for a new apartment for the same price, they could move further away from the center of the country, to places like Harish or Kiryat Gat.”
Sery and Tamir say they choose to live in the center of the country because that’s where the jobs are. They can manage without a car and not spend long hours in traffic jams, and they can also enjoy cultural and leisure activities on the weekends.
“It would be great if I could just move to Dimona or rent an apartment in a northern moshav, but the center of my life is here and you can’t insist that I move to the periphery before there are solutions for those who live there and want to maintain a good income,” Sery says.
Tamir acknowledges that he is renting an apartment in pricey north Tel Aviv, but asserts that “Yes, an apartment in Afula would cost half as much, but as long as my wife is a student here in the center and I work here, we have no economic justification to move.”
The Mechir L’Mishtaken program managed to generate more building starts in the periphery and facilitate a little more mobility for couples from the periphery who wanted to buy an apartment in central Israel.
“Mechir L’Mishtaken brought many young couples back into the real estate scene because it enabled them to buy an apartment with a small amount of capital,” Karmon says. “In the program, someone who came with 300,000 or 400,000 shekels was able to buy an apartment in Herzliya, Rishon Letzion and other central cities. Even someone who came in with just 100,000 shekels became a real candidate to buy an apartment in more outlying areas like the krayot near Haifa and Tirat Hacarmel.”
Avi Yusufov, mortgage consultant and founder of Mashkanta Mishtalemet, says the problem is that for everyone else, prices have been rising faster than future home buyers’s ability to accumulate savings for a down payments.
“A lot of young couples who dream of owning their own home are willing to move in with their parents to save money or to cut back on their standard of living to realize their dream,” he says. “The problem is that a three-room apartment that cost 800,000 to 900,000 shekels at the start of this decade is now selling for at least 1.4 million shekels. In greater Tel Aviv, the numbers are on a whole other level. Basically, demand is climbing, the supply of land and housing units remains limited, and prices are rising.”
Without genuine oversight of rental prices by the government and local authorities and without the creation of affordable housing on a significant scale, with the young generation also having been dealt a mighty blow in the job market due to the pandemic and having no political power fighting on its behalf, the only avenue left may be to come to Balfour Street once the lockdown is lifted, pitch a tent and refuse to leave. And hope that it will help.