Finance Minister Moshe Kahlon will bring a wide-ranging program aimed at bringing down soaring home prices to the housing cabinet on Monday that includes plans to streamline construction approvals and raise taxes for those who buy homes as an investment.
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The plan will be presented at the housing cabinet’s first-ever meeting under the new government, underscoring the importance Kahlon is giving to addressing the long-simmering problem escalating home prices. The plan would give unprecedented power to the treasury over the property sector.
On Wednesday, Eugene Kandel, Prime Minister Benjamin Netanyahu’s chief economic adviser, said he believed home prices were 30% higher than they need to be, even with today’s low interest rates.
“In recent years people have been buying homes in Israel because they fear the prices will keep climbing,” he told a real estate conference at Tel Aviv University.
The first key element of the plan would be to do away with the independence of local planning committees, whose authority will be moved into a single new planning authority answerable to the Finance Ministry.
The second element involves restructuring the Israel Lands Authority, the body that manages and tenders state-owned lands. Under the Kahlon proposal, the ILA would hand over authority to oversee land planning and development to the Finance Ministry.
The ILA would continue management of land as it has until now, but would lose control over policy.
Elements of the Kahlon proposals, which were leaked to TheMarker on Tuesday, quickly elicited protests from environmental and social-activist groups, which have formed an umbrella organization called the Forum for Democratic Planning.
“It appears that the finance minister is planning to take control of the planning system, which has until now enjoyed independence and given a voice to a wide variety of voices in the public sector,” the Forum said in a letter to Kahlon.
The committees are composed of representatives from the government and local authorities as well as citizens’ groups. “We are concerned that you will be creating a homogenous system of decision-making based on purely economic considerations, while the wide range of expert opinions that have existed until now will disappear,” it said.
Another element of the Kahlon plan, which was leaked last month and has aroused considerable controversy, would be to raise taxes on residential real estate investors. Kahlon wants the government to act on this measure quickly to avoid sparking a storm of investor home purchases before the higher tax rate is enacted.
The proposal calls for replacing a graduated tax rate that ranges from a low of 5% for houses worth less than 1.6 million shekels ($420,000) to a high of 10% on properties in excess of 16 million shekels. Treasury officials have not settled on a final, unitary tax rate, but sources said it would be in the range of 8-10%.
The aim of the single rate is to make investing in inexpensive homes, the kinds usually bought by the first-time buyers who have felt the brunt of high home prices, especially unattractive.
Kahlon rode his Kulanu party to 10 seats in the Knesset in March’s election, making his faction the second biggest in the coalition, by promising to tackle the high cost of living – not just housing but other sectors as well, mainly by introducing more competition. On Wednesday, he named a committee to explore breaking up the bank cartel (see story on this page).
Experts have disagreed on how to solve the housing problem, but almost all agree that the stock of homes has to grow to become better aligned with demand. The government acts as a bottleneck to residential building, both because of the near monopoly it has on land through the ILA and due to a slow and inefficient planning-approval process.
At Wednesday’s conference Kandel noted that it took 13 years for planning approvals in Israel on average, compared with just two years in the United States.
Other parts of the Kahlon housing plan call for fewer apartments to be used as offices and for districts now zoned for office and commercial use to be rezoned for residential purposes
Kahlon’s plan would free up many of the estimated 100,000 apartments used by doctors and other professionals as offices by taking away the authority of local planning committees to authorize the practice on a case-by-case basis.
The rezoning plan is the most controversial of the proposals and the only one likely to face serious opposition in the housing cabinet, sources said. Local authorities prefer office and commercial construction because they collect higher arnona (municipal taxes) than they do on residential units and have to provide fewer services like schools and parks.
Kahlon will propose that the government compensate local authorities for their lost tax revenue.