Government Approves Plan to Sell Homes Cheap

Together with Lapid's VAT-exemption plan, the government hopes target-price tenders will rein in soaring home prices.

Hagai Frid

The housing cabinet on Monday approved a plan to sell large amounts of land over the next five years at below-market prices as part of its “target-price” program to lower housing costs.

The revised plan approved by the ministers calls for land slated for 66,000 housing units to be sold by the end of 2019, 5,000 more units than the Housing and Construction Ministry originally planned. In target-price tenders, the government sells land at a discount to developers in return for a commitment to sell a certain percentage of the homes built on it at below-market prices.

The housing cabinet also approved 4 billion shekels ($1.2 billion) worth of transportation projects, all of which are intended to speed up the construction of new housing. These plans include the building of new roads, interchanges and other infrastructure that will enable access to a number of areas where new housing will now be able to be built. The ministers also approved an Environmental Protection Ministry plan to encourage “green construction.”

The vote came a day after the full cabinet approved Finance Minister Yair Lapid’s controversial plan to grant an exemption from the value-added tax on new homes bought by first-time home buyers from contractors. The exemption, also aimed at reducing home prices by saving buyers who qualify the 18% VAT, is forecast to cost the government some 2.4 billion shekels in lost tax revenue annually.

The government has been struggling to contain home prices, which have risen 8.3% in the 12 months to April. Adding to the government’s woes, residential construction starts were lower in the first quarter, threatening to crimp supply in the future.

The target-price plan was presented jointly by Housing and Construction Minister Uri Ariel and Lapid, even though the two had clashed over the timing of its implementation. The plan is more closely identified with Ariel, and the zero-VAT plan is Lapid’s initiative. Harel Locker, the director general of the Prime Minister’s Office, intervened to ensure that both the target-price and zero-VAT plans were approved this week. The zero-VAT plan still has to be approved by the full Knesset, while the target-price plan does not.

Meanwhile, the price gap between new and second-hand homes in the same area narrowed by half over the past five years, the Geocartography research institute reported. It found that since 2009 the difference between new and second-hand homes had fallen to only 10% at the end of 2013 from an average of at least 20% in 2009.

Among the reasons for the shrinking gap are that many of the second-hand residences are relatively new, especially those bought as an investment. In addition, older homes in the center of cities now sit on relatively expensive land, made more valuable by urban-renewal projects, Geocartography said.

The biggest gap in prices was in the Krayot area north of Haifa, where it reached up to 44%. There are few urban renewal projects in the area, and large numbers of new home are to be built in the next few years, Geocartography said. The gap was just 10% in Tel Aviv and 15% in Jerusalem. At 3%, Rosh Ha’ayin showed the smallest difference.

Raz Smolsky contributed to this report.