Cabinet Panel Makes Higher Tax on ‘Ghost Houses’ Permanent

The two measures adopted Monday to alleviate the housing shortage and rein in soaring prices, allow municipalities to double local rates on homes unoccupied most of the year.

Moshe Kahlon, left, speaks with Prime Minister Benjamin Netanyahu during a Likud party meeting at the Knesset in Jerusalem October 15, 2012.
Baz Ratner, Reuters

Israel’s housing cabinet adopted two measures on Monday to alleviate the housing shortage and rein in soaring prices, authorizing cities to convert some land zoned for industry to housing and making permanent a rule increasing municipal taxes on so-called ghost apartments.

Ministers approved making permanent a temporary order first approved in 2013 that allows municipalities to as much as double local taxes (arnona) on homes that are occupied three months a year or less. The law doesn’t require local authorities to raise rates, but gives them the power to do so; by making the law permanent, more are likely to go that route. 

Both measures were initiated by Finance Minister Moshe Kahlon, who has made lowering home prices one of his top priorities. Last week, the treasury unveiled plans to tax investors who own three or more homes starting next year. 

So far, however, Kahlon’s measures – the centerpiece a program to sell state-owned land to contractors at a discount on condition they pass on the savings to homebuyers – have had little impact on prices or supply. 

Where the higher arnona rates have already been put into effect, including Jerusalem Tel Aviv and Haifa, the main effect has been to sharply increase taxes for thousands of foreigners who have bought houses in Israel to use a few weeks a year as a second home. Occupancy is measured by examining water-meter usage.

In Jerusalem, some 1,600 homeowners who didn’t appeal an initial warning about the higher rate were sent notices billing them double their old rate for arnona, to an average rate of 224 shekels ($57.60) a square meter. In Tel Aviv, some 1,400 homes have been targeted for double arnona.

Jerusalem expects the higher tax to bring in about 18 million shekels in tax revenues, but Jerusalem Deputy Mayor Ofer Berkowitz said the main reason for the initiative is to encourage homeowners to sell or rent their properties.

“Doubling the tax will put ghost apartments into the rental market as well as add significantly to municipal revenues that will be dedicated to creating affordable housing,” he said. “I keep hearing about more and more apartments going up for sale or being rented because of double-tax we’ve imposed.”

The housing cabinet’s other measure allows local authorities to rezone up to 20% of land originally designated for commercial or industrial use for residential construction without having to go for the lengthy process of getting approval from local planning committees. 

However, local authorities can act only as long as plans for its original use haven’t come to fruition. The remaining 80% would have to be used for building that creates employment.

A paper giving the rationale for the law said there was a significant excess of land zoned for industrial and commercial use, which was limiting the supply of land for residential development. It is also deterring developers from building more industrial and commercial projects in the periphery, which would help create jobs. 

A final measure approved by the housing cabinet would make it easier to convert commercial and industrial buildings adjacent to residential areas into rental housing.

Israel’s housing cabinet adopted two measures Monday to alleviate the housing shortage and rein in soaring prices, authorizing cities to convert some land zoned for industry to housing and making permanent a rule increasing municipal taxes on so-called ghost apartments.

Ministers approved making permanent a temporary order first approved in 2013 that allows municipalities to as much as double local taxes (arnona) on homes that are occupied three months a year or less. The law doesn’t require local authorities to raise rates, but gives them the power to do so; by making the law permanent, more are likely to go that route.

Both measures were initiated by Finance Minister Moshe Kahlon, who has made lowering home prices one of his top priorities. Last week, the treasury unveiled plans to tax investors who own three or more homes starting next year.

So far, however, Kahlon’s measures – the centerpiece a program to sell state-owned land to contractors at a discount on condition they pass on the savings to homebuyers – have had little impact on prices or supply.

Where the higher arnona rates have already been put into effect, including Jerusalem, Tel Aviv and Haifa, the main effect has been to sharply increase taxes for thousands of foreigners who have bought houses in Israel to use a few weeks a year as a second home. Occupancy is measured by examining water-meter usage.

In Jerusalem, some 1,600 homeowners who didn’t appeal an initial warning about the higher rate were sent notices billing them double their old rate for arnona, to an average rate of 224 shekels ($57.60) a square meter. In Tel Aviv, some 1,400 homes have been targeted for double arnona.

Jerusalem expects the higher tax to bring in about 18 million shekels in tax revenues, but Jerusalem Deputy Mayor Ofer Berkowitz said the main reason for the initiative is to encourage homeowners to sell or rent their properties.

“Doubling the tax will put ghost apartments into the rental market as well as add significantly to municipal revenues that will be dedicated to creating affordable housing,” he said. “I keep hearing about more and more apartments going up for sale or being rented because of double-tax we’ve imposed.”

The housing cabinet’s other measure allows local authorities to rezone up to 20% of land originally designated for commercial or industrial use for residential construction without having to go for the lengthy process of getting approval from local planning committees.

However, local authorities can act only as long as plans for its original use haven’t come to fruition. The remaining 80% would have to be used for building that creates employment.

A paper giving the rationale for the law said there was a significant excess of land zoned for industrial and commercial use, which was limiting the supply of land for residential development. It is also deterring developers from building more industrial and commercial projects in the periphery, which would help create jobs.

A final measure approved by the housing cabinet would make it easier to convert commercial and industrial buildings adjacent to residential areas into rental housing.