Israel's Finance Minister Remains Upbeat About Lowering Housing Prices

But Moshe Kahlon's director general cautions that reducing prices will take several years.

Construction in Rishon Letzion, December 22, 2016.
Ofer Vaknin

Finance Minister Moshe Kahlon expressed optimism yesterday about bringing down housing prices. Speaking at a news conference in Tel Aviv, he called the housing data “encouraging” in apparent reference to Mehir Lemishtaken, a government program that provides developers land at subsidized prices to drive down the cost to the home buyer.

However, Finance Ministry director general Shai Babad suggested that the public wait three or four years. “You don’t solve a housing crisis in a day,” Babad said at the same news conference.

Babad said the number of residential housing starts is at a high – at 54,000 units a year – which he said, by boosting supply should bring down the high cost of housing in the country. The Mehir Lemishtaken program, he added, provides housing at 20% to 25% under market prices “and the more that young people secure housing, it will have an impact on housing prices.”

Kahlon said, “Our first goal for the housing market is providing reduced-cost homes to young people through the Mehir Lemishtaken program,” and added that the program will ultimately influence the housing market in general.

Despite data from the Central Bureau of Statistics that showed housing prices in the market as a whole increased by 8% on average last year, Kahlon said the market was undergoing a change. “We are in the right direction, but the process is taking time,” he acknowledged.

In a wrap-up of the state of the economy in general last year, the finance minister spoke of the importance of reducing socioeconomic disparities in the country, citing the savings plan that the government instituted, effective this month, which includes a monthly government contribution to each child’s fund, as a major step. The economy cannot grow without narrowing economic gaps, he said. It was not possible to have “a healthy economy with a sick society.”

Taking to task his critics who had objected to increased government spending, Kahlon cited the historically low debt-to-GDP ratio prevailing in the country. Regarding the Israeli Arab community and the country’s ultra-Orthodox Jews, both of whom have low workplace participation rates, he said their integration into the workplace presented an opportunity to expand the economy.

Asked how his relations are with the country’s central bank, headed by Bank of Israel Governor Karnit Flug, the finance minister replied: “I have complete confidence in the governor. There is inherent tension between the Bank of Israel and the Finance Ministry, but we see eye-to-eye on more than 50% of things.”