'Target Price' Plan to Reduce Cost of Homes Ripe for Abuse 1.627069

Nimrod Bousso
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An illustrative image of construction in Israel's north.Credit: Rami Shlush
Nimrod Bousso

The “target price” program, a key government initiative aimed at reducing prices of homes, is expected to be approved by the Israel Lands Council on Tuesday, but industry figures are already warning that the program will be vulnerable to abuse.

At issue is the failure to create a lottery to allocate rights to buy the cheaper homes that will be built by contractors under the plan. Builders will thus exercise control over who gets the homes. Figures in the building sector who spoke on condition of anonymity said that opened the way for extortion and favoritism.

Under the plan, the government will tender land at reduced prices in selected areas at a 20% discount, with the understanding the contractors who buy it will pass on the savings to people buying the homes they build.

All told, target pricing may save home buyers some 2 billion shekels ($520 million) every year, with some saving as much as 400,000 shekels on the price of a home.

The problem, said sources close to the matter, is that demand is expected to far outstrip supply. The proposal will make about 9,600 units available at lower price each year; as many as 90,000 prospective buyers could be eligible for the discount.

“What’s target pricing? You put some money in a contractor’s pocket and he’s supposed to pass it on to the buyer,” said one source. “He has a home he’s supposed to sell for 1 million shekels in an area where the market price is 1.2 million, which means he has a 200,000-shekel gift to give to someone. They tell him you decide who gets it. What does the Housing Ministry think he’ll do? Publish an ad in the newspaper? He’ll go to his friends and people he has ties to and give it to them.”

Critics warned that many contractors are likely to demand bribes as well.

The Housing and Construction Ministry says it is aware of the problem but that imposing a lottery system on builders would deter them from joining the initiative.

Another reason is competition between the target-price plan and Finance Minster Yair Lapid’s proposal to exempt many first-time home purchases from the 18% value-added tax. The zero-VAT initiative has no lottery or other mechanism for awarding the exemption, although it does specify criteria for eligibility.

“We have no dispute that a lottery is the fairest and most ethical way to allocate” the discount, Housing Ministry Director General Shlomo Ben-Eliahu told TheMarker. “I promise that the day zero-VAT homes use a lottery, we’ll do the same with the target-price” program.

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