This Is the Israeli Government’s Greatest Economic Failure

Over the past year the price of an average apartment in Israel has risen by more than 200,000 shekels ($62,090), an increase of 15.3 percent from last year, and almost 10 percent since Prime Minister Naftali Bennett took office.

While homeowners who see their properties’ values increase monthly may disagree with the claim that the biggest failure of Bennett’s government in the economic sphere is the sharp rise in housing prices, it comes as a major blow for people who don’t own homes and are considering buying. In terms of the average salary, it means that compared to last year a person has to work an additional 18 months to buy the same apartment.

The failure of the Bennett government is not a failure to act, but stems from excessive statements that fueled the price increase. Since the government was sworn in, a number of steps have been taken to repair what it inherited from former Prime Minister Benjamin Netanyahu in the realm of housing, especially the damage of the two years that saw four elections which paralyzed the government.

The current government increased land sales for construction and set the tax on investment apartments back at its previous level. Yet, at the same time, the three ministers most relevant to the housing market, Finance Minister Avigdor Lieberman, Construction and Housing Minister Zeev Elkin and Interior Minister Ayelet Shaked, have not stopped proclaiming that the price increases will continue and that the government has no plan to stop them.

The public got the hint, and in fact believes that the government doesn’t really care about the price hike, and has stormed the housing market. This has led to a record-breaking number of new mortgages over the past year, totaling 116 billion shekels in 2021, and setting a new monthly record in March of 13.4 billion shekels.

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There are many reasons for the skyrocketing housing prices: Low interest rates, the increase in the portion of mortgages permitted to be linked to the prime interest rate, the previous finance minister Yisrael Katz’s move to cut purchase tax for investors in the middle of the pandemic, the end of the reduced-price apartment program Mehir Lamishtaken, and of course, the gap between supply and demand.

However, the current government has done its part via its constant declarations about prices continuing to increase. This is a dire mistake, which ostensibly stems from the need not to sell the public false promises, but rather to tell the truth. But the ministers in charge of the whole chain of production of housing, from planning, to marketing as well as the taxation aspect, are not economic commentators or forecasters. They have a responsibility to supply the required demand to prevent market shocks. They don’t have to state that housing prices will go up, but rather do what is needed to stop it from happening, and certainly not at the sharp rate of 15.3 percent a year.

So what should they do? First of all, to define the spiking cost of housing as a social problem. The platform of the current government states that it would “work determinedly to moderate rising housing costs” – a weak statement to show that this government is at peace with the rising prices. This statement conveyed the message they have no interest in lowering housing costs or stopping their rise.

Will a 15.3 percent spike will raise the government’s interest in lowering costs or stopping them from rising all of a sudden? Highly unlikely. The government has gone into survival mode after coalition whip MK Idit Silman defected to the opposition, and it’s doubtful that any attention will be paid now to any long-term plans.

It’s hard to assess how long the Bennet government will survive, but it’s fairly clear that it will leave behind a growing economy, a low unemployment rate and sky-high housing prices. Supposedly, every entity involved in the matter – the Finance Ministry, banks, contractors, renovators, architects and designers – are enjoying the high tide in the housing market. But such a sharp price hike also leaves them with a fear of heights. They would prefer more moderate and consistent rise over such sharp jumps that could create social and financial upheavals. The Bennet government can’t place all the responsibility for this on the previous government. It has its own real and quantifiable contribution to this situation.