Lapid Promises to Resolve 'Scandalous’ Housing Prices

Bank of Israel Governor Karnit Flug also notes that housing starts have increased and that if trend continues, housing costs will fall.

Finance Minister Yair Lapid said Friday that the ministerial committee on housing prices will be making dramatic decisions in coming days and weeks that should ultimately resolve the high cost of housing. But the problem will not be solved in the space of a year, he warned.

The proposed solutions are to be submitted to the ministerial committee on housing costs by Lapid, Interior Minister Gideon Sa’ar and Housing and Construction Minister Uri Ariel, but Lapid declined to elaborate on them. “The cost of housing is nothing less than a scandal,” Lapid told Channel 10. “The rise in home prices will be stopped at the end of 2014,” he vowed, “and prices will start dropping in 2015.”

Bank of Israel Governor Karnit Flug also addressed government housing policies on Friday. After neglecting efforts to boost housing supplies for years, thereby lowering prices, government authorities are now trying to increase the number of housing starts, which last year stood at more than 40,000, she told Channel 2. If this trend continues, the rise in the cost of housing will stop and prices will begin to fall, she predicted.

In his Channel 10 interview, Lapid agreed with the contention that, over the years, governments found it in their best interest not to lower the cost of housing, which is particularly high in the Tel Aviv area and Jerusalem. The state, which through the Israel Lands Administration holds large amounts of land, will be prepared to sell parcels off for new construction at substantially lower prices, the finance minister stated. That is already happening on some projects, he said, and in the future the government will not turn a profit at all on land it sells for rental housing. Lapid added, however, that it will require patience before the cost of housing comes down.

Things will change, he promised, within the term of the current government, which runs to 2017 unless the government falls or early elections are called. The housing crisis is a threat to Israeli society, he said, adding that he spends at least half his time on the issue. Prime Minister Benjamin Netanyahu hinted that he, too, would become involved in the issue in great detail, something Lapid says he welcomes.

Flug, meanwhile, said that efforts by the Bank of Israel in recent years to address the cost of housing – most importantly by lowering lending rates – was correct. Otherwise, she said, economic growth would have been lower and employment higher. The option also existed to raise some taxes, she said – including, for example, the purchase tax on housing purchased as an investment.

Hebrew University Prof. Omer Moav, who headed former finance minister Yuval Steinitz’s economic advisory panel, called any suggested tax hikes on the purchase of housing for investment “highly problematic.” Such investors, he told TheMarker, rent out their properties. “The day they manage to suppress the investors, rental prices will be higher. And who will be hurt? The renters, that weakest group.”

Everyone knows, Moav said, that the problem of the cost of housing must be addressed by expanding supply rather than curbing demand. He called any effort to depress demand a serious mistake, particularly with regard to housing for young couples and first-time home buyers. But he also cautioned against excess optimism among investors in housing.

From a historical perspective, there have been long periods when housing prices actually fell, he noted. “Personally, I invest abroad in securities and live in Israel in a rented apartment,” he said.

Addressing the subject of the surging value of the shekel, particularly against the dollar, Flug said the shekel is strong because the Israeli economy is strong. Steps that the central bank has taken in an effort to curb the shekel’s rise are giving exporters breathing room to adjust to a weaker dollar, she noted.

Israeli companies heavily engaged in exports have long expressed concerns that the strong shekel was cutting into their profit margins and making their products less competitive. The Bank of Israel lowered the base lending rate from 1% to 0.75% for March, which would tend to depress the value of the shekel. It has also been purchasing dollars in an effort to shore up the price of the greenback.

Nir Keidar
Ilan Assayag