Israeli Housing Starts Plunge, Potentially Heralding a Rise in Home Prices Soon

Hadar Horesh
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Galei Tchelet Street in Herzliya Pituach, August 20, 2020.
Galei Tchelet Street in Herzliya Pituach, August 20, 2020.Credit: Tomer Appelbaum
Hadar Horesh

Even though the building sector was largely exempted from coronavirus restrictions, housing starts plunged 9.5 percent in the 12 months through September, the Central Bureau of Statistics reported on Sunday.

The drop in the number of starts to 49,810 units from 55,060 a year earlier is stark evidence that activity in the building sector is in decline, a phenomenon that is likely to add to the upward pressures on home prices going forward.

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The bureau said housing starts jumped 19.4 percent to 11,695 units in the third quarter from the second, but that was mainly due to the end of the first coronavirus lockdown in the spring. Compared to third-quarter 2019, starts were down 14.6 percent.

Housing completions were down by an even sharper 13.2 percent in the 12 months through September, to 46,510 units. In the third quarter, they plunged 21 percent from the second to 9,886 units.

The report on the drop in housing starts comes less than a week after the bank of Israel took stops to make mortgages cheaper, a move that is expected to increase demand by making housing loans more affordable. A week ago, the Central Bureau of Statistics said that from August to October, 14,300 new homes were sold – an annual rate of 60,400 units.

Part of the slowdown in starts has been a drop in the amount of land marketed to builders by the Israel Lands Authority. The government hoped to compensate for that by stepping up urban renewal programs, but the latest figures from the bureau showed that the number of starts in that segment dropped 6 percent in the 12 months through September, to 6,360 units.

However, another program, known as Tama 1, for adding floors in existing apartment buildings, showed a rise of 5.1 percent for the 12 months, to 3,540 units. In addition, the number of building permits issued by local authorities rose slightly to 55,200 from 54,800 a year earlier.

The government has been struggling for several years to increase construction starts. The coronavirus marked another setback for officials by limiting the number of Palestinian workers who could enter Israel, thereby disrupting works at many construction sites.

The building sector is concerned that the government is in no position to reverse the decline in construction or address growing demand. The coalition crisis, among other things, has prevented the Housing and Construction Ministry from increasing the number of foreign building workers allowed to enter Israel.

The ILA has reduced lands by tens of percent due to administrative problems while Finance Minister Yisrael Katz has put off approval of a Housing Ministry program for subsidized housing.

A centralized housing unit formed under the previous finance minister, Moshe Kahlon, to coordinate policy with the Housing Ministry has been disbanded. An alternative system to coordinate policy among ministries has not succeeded.

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