Policy Clash in Cabinet Threatens Israel’s Plans to Lower Housing Prices

The Finance Ministry is pushing programs such as zero VAT for certain home buyers - a move that the Housing Ministry and Bank of Israel oppose.

A dispute between Finance Minister Yair Lapid and Housing Minister Uri Ariel has cast doubt on whether the plan to lower housing prices by setting “target prices” in government tenders will be implemented.

For 80% of apartments in the target-price plan, the final price paid by consumers will be set 20% below market rates. The program is a crown jewel of Ariel’s and Prime Minister Benjamin Netanyahu’s efforts to put a lid on housing prices.

But the Finance Ministry has set so many conditions it’s doubtful whether the plan will be carried out. A committee has been established to agree on implementation of the program; the Housing Cabinet said the committee would finish its work within three weeks — a period that ended more than a week ago.

Finance Minister Yair Lapid heads the panel, which also includes Ariel, the director general of the Prime Minister’s Office, Harel Locker, and the head of the Israel Lands Authority, Bentzi Lieberman.

A meeting between Lapid and Ariel before Passover proved fruitless. The committee is due to keep meeting after the holiday, which ended Monday, though it’s not clear when, how often or with how much urgency.

Lapid and Ariel disagree on two key issues. Lapid demands that target-price tenders start in 2015 — when it’s clear whether Lapid’s plan to exempt small new apartments for first-time home buyers from value added tax helps lower prices. The legislation for implementing the zero-VAT proposal will be completed in August at the earliest.

In addition, Lapid demands that the target-price tenders not be issued in cities where the state has endorsed plans to market thousands of new housing units. In these agreements, the state has committed to fund the infrastructure for new neighborhoods, including schools and other public buildings, while the cities are obligated to push the plans forward quickly.

Ariel says Lapid’s demands make the target-price plan almost worthless.

The other large plots of land to be sold off in the next few years are on army bases in the center of the country. The bases are to be evacuated and built on, but it has already been agreed that these units will not be sold under the target-price arrangement.

Ariel has also criticized Lapid’s zero-VAT plan, which the Bank of Israel and National Economic Council have also criticized. Ariel says the program will affect too few homes on offer and therefore fail to lower prices overall. Ariel had planned to sell around 8,000 new housing units annually under the target-price program.

In any case, both Netanyahu and Ariel were busy over the holiday with matters like the peace talks with the Palestinians and keeping the governing coalition together. These problems could result in Ariel’s Habayit Hayehudi party leaving the coalition and Ariel departing the Housing Ministry.

The Finance Ministry said the matter of target-price tenders was still under discussion. The Housing Ministry said it was continuing to work on the target-price tenders, and the talks with the Finance Ministry would resume after Passover.