Two Plans for Cutting Home Prices to Go Into Effect at Same Time

The political compromise in effect a delay is based on the need to push through legislation exempting certain home buyers from VAT.

Emil Salman

The housing and finance ministries have agreed that their plans to lower housing prices will go into effect simultaneously, a move that could delay the program's implementation.

Housing and Construction Minister Uri Ariel is expected to unveil a plan Sunday envisioning the construction of 61,000 housing units over the next five years in the so-called target-price program.

The two ministries, however, have agreed that Ariel's plan will only go into effect when a law is passed letting the Finance Ministry exempt certain buyers of new homes from value-added tax. The target-price program provides land to developers at reduced rates so that the developer can offer buyers housing at no more than 80% of the market price.

The material summarizing the ministries’ plans does not explain why the target-price program would be put on hold until the VAT-exemption law is passed. If the VAT legislation runs into opposition, the first phase of the target-price plan could be postponed until next year.

Ariel’s office said in a statement the two programs complemented each other and would be launched together to prevent confusion. But Finance Minister Yair Lapid, the head of the centrist Yesh Atid party, reportedly fears that the target-price initiative by Ariel, a right-wing politician, could go into effect first.

TheMarker has obtained a copy of the Housing Ministry’s target-price plans for this year and next. The cost to the treasury from the program, which in effect subsidizes the price of government-owned land provided to developers, has not yet been disclosed, but it is expected to total about 1.5 billion shekels ($435 million) annually.

The VAT exemption would exempt first-time buyers of new construction if they satisfy a number of conditions. Value-added tax is currently 18%, so the VAT exemption is expected to cost the treasury another 2.4 billion shekels annually, bringing the combined total from the two programs to about 4 billion shekels.

Housing Ministry officials hope the programs will decrease housing prices by forcing down the price of other new construction and compelling sellers of existing homes to lower their demands.

In any case, it is clear for this year and next that the target-price plan will not make land available in the areas of highest demand — Tel Aviv and the Sharon region to the north. Neither does the plan provide land in outlying areas of the country.

This stems from a decision not to include locations where land values are below 80,000 shekels per unit, which excludes remote areas, or where the average home price tops 16,000 shekels per square meter, which excludes locations in highest demand.

The target-price plan calls for the sale of land for 6,000 housing units this year, including 3,000 in Rosh Ha’ayin east of Tel Aviv, 1,500 in Modi’in halfway between Jerusalem and Tel Aviv, 1,200 in Haifa suburb Kiryat Bialik, 1,000 in ultra-Orthodox Jerusalem neighborhood Ramat Shlomo and 700 in Pardes Hannah south of Haifa.

Next year land would be made available for 2,500 more units in Rosh Ha’ayin, 2,300 in Yavneh south of Tel Aviv; 2,000 just south of Haifa, 1,800 in Jerusalem, 1,300 in Kiryat Bialik and 900 in Haifa suburb Kiryat Ata.