Will New Initiatives Actually Bring About Lower Housing Prices in Israel?

In bid to increase supply of homes, housing cabinet approves expanded ‘target price’ plan and fast track for winning extra building rights.

Hagai Frid

The housing cabinet on Monday approved two key initiatives by Finance Minister Moshe Kahlon to lower the price of housing – one to expand the so-called “target price” plan that gives contractors land at discounted prices, and another to let developers build more on their land without excessive red tape.

Ministers approved expanding the target price plan, which offers land to builders at discounts of 10% to 80%, so long as they pass it on to home buyers, throughout all of the country, including outlying areas. The program is expected to reduce the cost of a home to first-time buyers – who are the ones entitled to the benefit – by some 200,000 shekels (nearly $53,000).

Meanwhile, ministers also approved a proposal that would let residential property developers add as much as 20% more floor space to new projects, including those already under construction, through a fast-track approval process.

Applications to build up to 20% more on existing properties would no longer be considered a major change, exempting builders from refiling plans to planning authorities – a time-consuming and expensive process. The extra building rights, however, must go on adding apartments, not other uses, and at least half the units in the building must be small apartments of 75 square meters or less.

The two initiatives come as the government struggles to douse an overheated housing market. On Sunday, the Bank of Israel reported that new mortgages taken out in June reached a record 6.99 billion shekels, inflated in part by property investors rushing to buy homes ahead of a hike in the purchase tax (one of Kahlon’s other initiatives).

Kahlon met some opposition to the target price plan from Economy Minister Arye Dery, who said he agreed with the plan in principle but urged that it be approved together with the 2015-16 budget in the Knesset.

“Just before the budget is being prepared, we can’t be making major decisions like this,” Dery said. “Every one or two weeks, we’re taking big decisions that impact on the [state] budget – but without taking it into account.”

Eran Nitan, deputy budget director in the Finance Ministry, estimated that the target price program would cost the government 2.5 billion shekels in 2015-16 – 2 billion shekels from lower land-tender revenues, and up to 500 million shekels from subsidies for development and grants. The latter figure will grow to up to 800 million shekels in subsequent years, he said.

Despite his concerns, Dery voted in favor of the target price plan. The proposal to ease building rights was backed by all the ministers but faces strong opposition from local authorities, who are expected to fight in the Knesset and/or the High Court of Justice.

“We’re talking about riding roughshod over the planning and registration process,” said Avner Akerman, chairman of the Municipal Engineers Association. “Say there’s a building already in the final skeleton stage of construction, after the parking area has already been excavated. A developer will naturally go the fast-track route, but where will the parking for the extra apartments come from?”

The treasury, however, is hoping the easing of rules will add thousands of extra homes to the market by liberating builders from lengthy approval processes. But Akerman warned it was unlikely to go smoothly as developers lined up to get fast-track approval.

A third, smaller initiative requires that all foreign construction workers work only on residential construction projects, instead of office and commercial construction. Kahlon also won backing to allow more Palestinian workers from the West Bank into Israel, to work in construction.