The housing market delivered another batch of bad news for Finance Minister Moshe Kahlon on Monday, with the Central Bureau of Statistics reporting that housing starts fell to their lowest level in eight years in the first half of 2018.
The CBS said there was a small uptick in the second quarter, with construction started on 11,228 homes, compared with 9,945 in the first quarter. But the first-half total of 21,173 starts was down 21% from the same time in 2017 and brought total starts in the 12 months through June 30 to about 44,000.
That is close to a third less than the 60,0 00 housing starts Kahlon has sought to achieve as he seeks to rein years of soaring home prices. The decline in starts threatens to create a shortage of new homes at the same time that a brief decline in prices late last year and early in 2018 seems to have petered out.
Over the weekend, the CBS said home prices rose 0.3% in June-July from May-June, prompting Kahlon to urge buyers be patient as projects like his flagship Machir L’Mishtaken gradually have an impact. On Sunday, the treasury’s chief economist said home sales fell 1% year on year in July. While the decline was small, the chief economist noted that it was from a low base and that in July 2017, sales had plunged 11% year on year.
The decline in housing starts was felt all across Israel, but the biggest declines were in the northern and southern peripheries, which had been the focus of new housing development in recent years.
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The Haifa region suffered the biggest decline, with starts plunging 43% in the year to June 30 from the year-earlier period – although in the city itself they jumped 34%. The southern Negev region saw a 26% drop and the northern Galilee suffered a 27% drop. Housing starts in the Jerusalem area dropped 18.5%.
CBS figures showed the declines were much more moderate in the Tel Aviv area (2%) and the center (5.5%), but even there the pace of building declined.
The figures reflect not only lower demand, which is reflected in lower home sales figures, but a sea change in the market.
As prices soared in central Israel, pricing a home out of the reach for many first-time buyers, contractors began building in the north and south where prices were more attractive. Towns like Kiryat Motzkin near Haifa, the new northern town of Harish as well as Netivot and Be’er Sheva in the south were chock-a-block with construction cranes and dust. Machir L’Mishtaken, a government program to subsidize the cost of a new home, also encouraged the trend of building in the periphery.
But, as it turned out, the demand from buyers never quite matched the supply because the periphery lacks employment, shopping, schools and entertainment that the greater Tel Aviv area has. Kahlon’s tax hikes on those buying homes for investment also deterred demand in the periphery and participation in Machir L’Mishtaken.