Israel Planning Massive Release of Land for Housing Construction

The housing cabinet is expected to approve a plan to market land zoned for tens of thousands of homes over the next two years – at low prices and in areas of high demand — as the government seeks to get a handle on skyrocketing housing prices.

Officials in the treasury and the Housing and Construction Ministry are working together with the National Economic Council and the Prime Minister’s Office to iron out the details of the plan, then to bring it to the housing cabinet for final approval by the end of the month.

Although the exact parameters have yet to be devised, sources said the plan envisages selling land via two tracks.

The first, called the “target price” track, would have the government set the final price at which the contractor must sell completed homes to buyers in tenders of state-owned land. In the second track, the government would conduct a reverse auction in which it sells land at below-market prices to the builder, who commits to selling the completed homes at the lowest price.

The homes would be made available to the general public, not to any category of buyers, except for the requirement that they are bought by people planning to live in them either as first-time buyers or people moving into into a bigger home. Property investors would be barred from bidding.

A draft of the plan is now being examined by Finance Minister Yair Lapid, Housing Minster Uri Ariel and Eugene Kogan, chairman of the National Economic Council, as well as officials in the treasury budget division.

The main point of contention is how much income the government stands to lose by implementing the plan, which is being defined by the number of housing units to be marketed.

The Housing Ministry and National Economic Council favor offering more homes, at least 10,000 annually. Housing Ministry sources said that tendering land for less than that would not have enough of an impact on the wider property market.

Against that, the treasury budget division and others are concerned about the costs of the program, and are less confident that a program of any size will have the effect its backers hope for. In another dispute, Lapid favors the target price track while his budget officials do not, sources in the housing cabinet said.

The cost to the state if it makes land for 10,000 to 15,000 units available annually is about 1.5 billion shekels ($432 million), as the government would profit far less from the sales than it ordinarily does.

Tenders for homes on that scale would equal about a third of all the land that the state-owned Israel Land Authority makes available to contractors every year, which typically ranges from about 30,000 to 35,000 units.

That would yield results which Prime Minister Benjamin Netanyahu’s government desperately wants to achieve as soon as possible. Home prices shot up more than 8% last year, and many families are finding that the cost of shelter is beyond their means, even at a time when interest rates on mortgage are at record lows.

But real estate experts have said that until the government convinces the public that it can rein in prices, buyers will risk purchasing high-priced properties and undertaking heavy mortgage repayments to ensure they have home equity.

A plan approved last summer at Lapid’s initiative to tender land for tens of thousands of units of affordable rental apartments will take longer to have an effect, sources said, because the first homes will not be completed for four to five years.

The areas where the homes to be developed in the plan now under discussion have yet to be determined, but the idea is to concentrate on undeveloped areas in the center of Israel, mainly near the towns of Rosh Haayin, Modiin and perhaps Herzilya.

While no official is disputing that the program should concentrate on the center of the country, where demand for homes is greatest, some are urging that the program be expanded to the Negev and Galilee as soon as possible, especially to Be’er Sheva and the Haifa suburbs.