Bank of Israel Governor Stanley Fischer called on the government Monday to build enough homes to meet demand, in an attempt to bring down soaring prices.
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"To cut prices and keep building at a quick pace, we need to increase the housing supply," Fischer told the Knesset Finance Committee. "Reducing prices must be done by increasing supply."
Fischer was speaking after the release of a report by the Knesset Research and Information Center stating that the last government failed to reduce prices."The necessary steps include, first, increasing the supply of land available for building, and second, reducing the amount of time it takes from the planning stage to the building stage," he said.
Fischer also addressed the issue of investors buying up homes and thus increasing demand and prices. "To reduce the number of investors, we recommend increasing the amount of time you need to own a home before you receive an exemption from betterment tax," he said.
"Currently, we're building 8,000 homes a quarter, versus 6,000 in 2003 and 2004. We need to build fast enough to meet demand. There has been a sharp drop in the number of building permits issued since the beginning of 2011, and this troubles us."
According to Fischer, there is a reserve of 22,000 homes available for sale, compared with only 5,000 in 2007 and 2008.
"There was a long period when prices decreased – until 2007 – and then there was a period of sharp increases. Over the long term, since 1973, housing prices have increased in [inflation adjusted] terms by only 2%," he said.
"In 2007-2008 home prices were stable, in keeping with inflation, but they've increased since. Rental rates have increased much less. Rent shot up between 2008 and 2009, but home prices have been very volatile and started increasing again over the past nine months. That fact disturbs us."
Home prices have risen more steeply in Israel than in any other country in the West, Fischer added.
"In every country where the financial system didn't collapse, home prices increased a lot. Every federal bank cut interest rates, making it possible to take out mortgages on the cheap. On the other hand, the American and European banking systems couldn't supply the credit and thus demand for housing dropped, pulling down prices," he said.
"The factors influencing demand are population size and increasing quality of life. In addition, there has been a drop in interest rates and the returns on alternative investments. That means that after the major recession, there weren't many investment options. Over the past few years, we had an increase in demand by investors."