The government’s efforts to stem speculation in residential property by raising taxes and tightening mortgage rules are having limited success because low interest rates continue to make financing home purchases too easy, the Bank of Israel admitted on Sunday.
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“It seems that these measures have reduced the volume of investors’ activity,” the central bank said in its semiannual monetary report. “However, since monetary policy around the world remained highly accommodative, the costs of financing remained low, encouraging households to continue purchasing homes.”
While the number of home sales and the volume of new home loans taken out have stabilized, the central bank said, they remain at very high levels.
The Bank of Israel and the government have been struggling to contain rising home prices, which the central bank said in this week’s report had increased 8% in the 12 months to October 2013. Sunday’s report constituted something of a retreat from the Bank of Israel’s stated view that a shortage of supply, rather than low interest rates, was the key cause of rising home prices. Nevertheless, the central bank has kept its base lending rate at a very low 1%, in part to prevent the shekel from appreciating further.
While it attributed part of the problem to low borrowing costs, the central bank also cited tight supplies of new homes. It held out hope that the trend might ease because the number of new housing starts has grown in the past three years, exceeding the growth in the number of households. “Even though it takes time from the moment construction of a home begins until it is ready for occupancy, these data may moderate the effect on home prices of the shortage of homes that was created as a result of low building volumes in the previous decade,”the report said.
The Bank of Israel report came as the Ministerial Committee on Legislation approved the creation of another national planning body that it said will have unprecedented authority to approve new residential construction. The body is the latest initiative of Finance Minister Yair Lapid’s “90-day” team to increase the housing supply.
The new entity, the Priority Plan for Housing Committee, will be authorized to rapidly approve construction plans for tens of thousands of homes in a one-stage process that eliminates the possibility of appeal. In a related move, the ministerial committee also approved new arrangements for the return to the state of land currently leased by farmers.
The new committee, which has been hailed by its supporters as a “high-speed detour” around the regular zoning and approval process, would be authorized to ignore existing regional master plans – but not the National Master Plan. Because the new panel is to be created under emergency regulations, it has a four-year expiration date that could be extended by the cabinet.
Opposition to the committee’s creation comes from a wide range of governmental and nongovernmental organizations, including the Environmental Protection Ministry, the National Planning and Building Council, local governments and environmental advocacy organizations.
“It’s another populist decision aimed at misleading the public,” Ramat Negev Regional Council head Shmuel Rifman said about the new committee, adding, “Building thousands of homes without considering regional infrastructure is like building a house without a foundation.”
Detractors of the new committee question the need for yet another planning body – one with draconian authorities – soon after the expansion of the powers of the new National Housing Committees, for the same purpose. Some figures argue that the goals would be better served by taking the cost of the new committee and putting it into an existing body.