Israeli Government Proposal Would Promote Denser Construction Projects

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There's an increasing presence of illicit money in Israel's real estate industry.Credit: Nimrod Glickman

The state is seeking to encourage local authorities to approve dense construction projects by allowing them to charge higher betterment taxes, as part of a proposal up for discussion in the Knesset Interior and Environmental Protection Committee Wednesday.

The proposal, known as the “density tax,” would be imposed on contractors who build buildings that are denser than average for the area. For example, in areas where the minimum permitted density is 10 apartments per dunam, a project with 18 apartments per dunam would be subject to extra taxation.

Particularly dense projects would be subject to higher betterment tax.

The proposal’s official explanation states that dense construction requires extra infrastructure investment, including roads, public parking, parks and public institutions.

Projects that are currently exempt from betterment tax — such as those that fall under National Master Plan 38, which seeks to reinforce buildings against earthquakes in exchange for giving contractors building rights on the roof — would be exempt from the new tax as well.

Behind the scenes is the desire to push local authorities to approve denser construction for privately held land. The Finance Ministry wants to halt construction projects like Neve Zemer in Ra’anana, where only four apartments are being built per dunam.

However, the proposal is angering contractors, who say that the cost of the tax will be pushed off onto buyers, who are already facing skyrocketing prices. They also caution that instead of encouraging dense construction, contractors may shy away from it in order not to be subject to the tax.

The Finance Ministry counters that the proposal will serve both contractors and the local authorities, but also the public at large, which needs denser construction and a larger housing supply.

Meanwhile Monday, Housing and Construction Minister Yoav Galant stated, “It’s clear we’re on the brink of a crisis, and maybe even at the beginning of a housing crisis already.”

Speaking in a Knesset Finance Committee discussion, he said, “We built 30,000 to 40,000 housing units a year for the past eight years, instead of 50,000, and we’re lacking nearly 100,000 housing units” relative to demand. “We’ll need another million homes within the next 20 years, which means 50,000 to 55,000 new homes a year.”

Construction in Israel is particularly slow, he added. “In Israel it takes 15 years to build a new neighborhood from the moment the decision is made until residents move in. In India it takes 8 years, in the United States 5 years and in Singapore 3 years. That’s unacceptable.”

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