Israeli Government Operating Flagship Housing Lottery Without Permits

Lapse leaves state open to possible lawsuits from failed applicants, Justice Ministry says

A housing project under construction in Kiryat Motzkin, June 25, 2018.
דורון גולן

The lottery on which the government’s flagship housing project, Mehir Lemishtaken (“Buyer’s Price”) is based, is illegal, according to Justice Ministry officials.

The plan was launched three years ago and some 130,000 households have registered for it in the hopes of landing an apartment at a reduced price. But TheMarker has learned that the program never got the permit needed to conduct a lottery, as required by law.

An urgent discussion held recently in the Justice Ministry determined that in order to continue holding the lotteries, in particular the next large lottery planned for this month, the state needs a special permit.

A senior legal official close to the attorney general, who is involved in the issue, confirmed the discussion, adding that conclusions had not yet been drawn up or issued. “When it is published, the conclusions will state that in the absence of permits, the apartment lotteries are illegal. We will inform all the ministries of this and will give them time to obtain the permits.”

The government now fears possible lawsuits by eligible families that did not win the right to buy a discounted apartment through Mehir Lemishtaken.

“Given the fact that the attorney general said in summing up the discussion that this activity, if not given the permits, is illegal, John Doe who didn’t win in a drawing could come and say that since the activity is illegal, there is a substantial flaw in the tender and it should be canceled,” said the official, who spoke with Haaretz on condition of anonymity. “This is a weighty question. In any case, the government ministries, after getting the summary, will have to urgently work to obtain the permits.”

The officials said that since the Justice Ministry approved the housing lotteries, no one would be prosecuted for the lapse. Nevertheless, the discovery places the entire project in doubt.

Israeli law prohibits gambling for goods, services or money, with the exception of the Mifal Hapayis national lottery and Sportoto sports betting. Businesses may conduct occasional lotteries, as long as they obtain a permit from the Finance Ministry.

The Finance Ministry official in charge of lotteries said public and nonprofit organizations were prohibited from holding lotteries and that she had never allowed a public body to conduct one. She said the Mehir Lemishtaken lotteries were never submitted for approval.

Finance Ministry Director General Shai Babad refused to answer questions about the legality of the lottery, referring a reporter to Deputy Attorney General for Civil Matters Erez Kaminetz.

Kaminetz said, “When the first Mehir Lemishtaken tenders were published, the finance and housing ministries examined the question of whether a permit was needed for this form of tender, in light of the ban on lotteries in the Penal Code. It was the ministries’ opinion at the time that no permit was needed, since the purpose of the legal ban is, inter alia, to prevent addictive gambling or the kind that isn’t orderly or supervised. This position was approved at the time by the Justice Ministry.

“Recently, following additional questions from various sources, this position was reexamined by the Justice Ministry. After consulting with the relevant officials, it was decided that there is a need to work toward regulating the issue at this stage by getting permits and the ministries were instructed to act accordingly.”

Mehir Lemishtaken-type lotteries for apartments have been around since the 1990s. Over the years the Israel Lands Authority had issued such requests for bids in a limited fashion in specific locations; between 2000 and 2007, for example, some 3,500 apartments were sold through the Target Price program, around half to the ultra-Orthodox community.

Upon assuming office, Finance Minister Moshe Kahlon announced that he planned to broaden application of the system to all state lands, and a computerized lottery system was set up by the Housing and Construction Ministry to run the project.

According to Housing Ministry data, some 130,000 households have registered to obtain an eligibility certificate for the project, and 52,000 households have won apartments in the various lotteries (that number includes Target Price winners). The largest lottery held so far by the state was in June 2017, when 15,000 apartments were raffled off. Since then the numbers have gradually dropped: In September 2017, 11,000 apartments were on offer, and in December 2017, 7,800. This year so far, the state has had two lotteries — for 6,600 apartments in March and for 4,200 apartments in July.

The need for a new legal arrangement comes on top of the fact that the plan has recently been under intense public criticism, has had legal petitions filed against it and has become more difficult to implement due to the local elections on October 30. Assuming that the state resolves the legal issue and grants a permit to the large lottery expected this month, it will probably be the last major lottery to be held under this program.

The Justice Ministry said, “A few months ago, the Justice Ministry held a discussion, attended by representatives of the Finance and Housing ministries, following a specific request received from the Finance Ministry. At the meeting, the need to get permits to hold the lotteries was revisited. At the end of the meeting it was made clear to the ministries that after a reexamination, it was decided to change the policy and that the relevant ministries will be required to obtain permits. However, the ministries will be given a period of time to organize.”