Israel's Housing Minister Pledges to Quickly Apply Reforms

Uri Ariel says two government initiative to bring down housing prices should go into effect this summer.

Tomer Appelbaum

Housing and Construction Minister Uri Ariel vowed on Tuesday to quickly implement the government's plans to reduce housing prices, as contractors warned uncertainty about the plans may boost prices.

“After ministers get up on stage to make a promise, they have two options: either to carry it out or to put their heads on the gallows. There’s a need, the plans are good and we are implementing them. It will happen,” Ariel told a real estate conference in Jerusalem.

He said draft legislation to eliminate the value-added tax on new homes purchases by first-time buyers would be given to the Knesset Finance Committee next week and approved by August 3. “That’s the schedule, unless there are [petitions to the ] High Court of Justice,” he said.

Ariel added that when the cabinet approves the so-called “target price” program — its second big initiative to rein in home prices — his ministry is ready to put it into effect immediately. “We need to get the decision approved by the Israel Lands Administration council, and not in the Knesset. It can be approved in one meeting or two. In two months, the first target-price tender will be published,” he said.

The target-price tenders will require contractors to sell homes at about 80% of the market value for nearby homes in return for large discounts on the land they buy from the Israel Lands Administration for building.

As Ariel spoke, figures issued by the Finance Ministry on Tuesday signaled that the property market remains uncertain about when and how the government programs will be implemented.

In its monthly report on major economic indicators, the treasury said home sales rose 5% in March. Sales of new homes rose 7%, but the treasury attributed the rise mostly to a single large project in the Jerusalem area. Otherwise, new home sales were unchanged from February, while second-hand home sales rose by 4%.

The figures appear to defy fears of a freeze in the housing market due to young couples putting off purchases in anticipation of the zero-VAT program. But the treasury report gives some credence to the concern, showing a drop in the number of first-time buyers, popularly known as “young couples,” of homes in areas with a large inventory of unsold units at prices of up to 1.6 million shekels ($460,000), the ceiling price for the VAT exemption. The drop was particularly pronounced after mid-month, when the government unveiled the zero-VAT program.

Meanwhile, the Israel Builders Association said on Tuesday it expected housing starts to fall by some 3% in 2014 to about 43,000 units and for the number to remain about the same in 2015. The organization said the decline may boost prices 7% this year, although it said the figure would depend largely on when and how the government’s plans were implemented.

The association estimated that with Israel’s population growing 1.9% annually, some 46,500 new households looking for a home are formed annually. That means regardless of policy, for the next two years, the stock of housing will lag behind demand, which is already 114,000 units in excess of supply.