Want to Buy a Home in Israel? Better Get Yourself a Large Fortune

Israel isn't quite as expensive as Hong Kong, yet. But going by a new international study, home prices here are insane.

Housing prices are so high that the prime minister highlighted his efforts to bring them down by saying less than 48 hours before polls opened that he would name Moshe Kahlon who gained fame as the minister who led the shake-up of the cell phone industry as chairman of the Israel Lands Administration.

If Kahlon eventually takes the job, the extent of his challenge is easily illustrated by the latest International Housing Affordability Survey, which compares home prices in urban areas around the world. The survey, done by the U.S. organization Demographia, uses a very simple rubric to determine housing affordability: the "median multiple," that is, the median house price in the area under study, divided by the gross (before tax) annual median household income in the same area. At its simplest, a grade of up to 3 meaning that one can buy a home for the equivalent of three years of one's annual pre-tax income means you are talking about affordable housing. Any grade above 5.1 is considered to be "severely unaffordable."

The survey focused mainly on English-speaking countries: the United States, Australia, Canada, Ireland, New Zealand, the United Kingdom and Hong Kong. The most expensive of these turned out to be, not surprisingly, Hong Kong: a small, crowded and wealthy island whose median multiple was around 13.5 in other words, off-the-scale expensive when it comes to purchasing a home. The United States and Ireland, after a 50% plunge in home prices from their respective peaks, turned in "moderately affordable" median multiples of 3.1 and 3.2, respectively. In New Zealand, one of the least crowded countries on the planet, the multiple median for housing prices is nevertheless a "severely unaffordable" 5.3.

And Israel? Since Israel was not included in the Demographia survey we tried to do our own calculation of the multiple median for housing prices here. According to National Insurance Institute figures for 2010, the median monthly pre-tax income in Israel per person is around NIS 5,500, and NIS 9,800 per household, or NIS 117,600 a year. The median price of an apartment in Israel is slightly under NIS 900,000. That puts the multiple median at 7.7, higher than the 7.2 at which Israeli was pegged using data from 2009. Israel is not yet as expensive as Hong Kong, but relative to Demographia's international study, home prices here are insane.

Demographia is owned by Wendell Cox, a proponent of private transportation and opponent of railway expansion who is a fellow in a number of conservative think tanks, facts that should be kept in mind when viewing the conclusions of the study.

Nevertheless, it is difficult to ignore some of these conclusions, which include repeated warnings about the damage that high home prices and a shortage of affordable housing wreak on economic growth and birth rates. The report quotes from the research of Joel Kotkin, who told TheMarker that the housing crisis was one of the reasons for the declining birth rate in the industrialized nations and in emerging nations, which is changing the face of human society.

Nir Keidar