Drop in Housing Starts Augurs Renewed Price Rise in Israel

Construction of new homes fell 17.1 per cent year on year in the 12 months through September, making the decline in home prices in the past year seem increasingly unsustainable

Construction in Herzliya
Ofer Vaknin

The decline in home prices in the past year seems increasingly unsustainable as construction of new homes continues to decline, constricting future supply.

Housing starts were down 17.1% in the 12 months through September 30 from a year earlier, to 44,510 units, the Central Bureau of Statistics said Wednesday. The agency added that the stock of unsold homes fell by 3,000 in that period.

That is well under Finance Minister Moshe Kahlon’s target of 60,000 a year, much less the 70,000 many experts say Israel needs to meet current demand and to close a growing housing shortfall.

“The authorities have to solve the serious housing shortage,” said Roee Fadlon, a co-CEO of the commercial and residential developer Fadlon Group. “The minute that happens, builders and buyers will get off the fence and there’ll be another rise in prices.”

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Kahlon has placed bringing down housing costs at the top of his agenda. He has raised taxes on homes bought for investment purposes. His Mahir Lemishtaken (buyers price) program sells state land at a discount to developers who pass on their savings to buyers.

Last week, the CBS said its housing price index was down 0.2% for September-October versus August-September. That brought the pace of declines in the past year to 1.8%, the first sustained decline in many years.

But industry sources warn that unless the two-year slump in housing starts is reversed, supply-side pressure will force prices back up.

Finance Ministry officials said in response to the CBS housing starts data wasn’t final. They said they expect an improvement in the fourth quarter, citing figures on the purchase of building materials such as concrete.

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“We believe there hasn’t been a significant change in housing starts from 2017,” said one treasury official, who requested anonymity.

But builders who spoke to TheMarker were less optimistic.

Construction inputs aren’t a good indicator of home building because they are used for other types of construction. In any event, the fourth quarter is traditionally a weak one for new construction. More likely, starts will be down 10% in the fourth quarter from the third, they said.

The biggest drop in starts was in the Haifa district, where they fell 49.5%. In the southern region they were down more than 26% and in the north 23%. Starts in the Jerusalem area fell 8%. Only the central district, where tel Aviv is located, saw a rise — of 5%.

Builders said the Mahir Lemishtaken program has monopolized the marketing of state-owned land, forcing the many who don’t want to participate in the program to find land in the private market.

In many case that has meant going into the cities and buying older buildings or empty land. However, building projects like that only are feasibly financially if the land itself is expensive, which effectively limits the practice to the greater Tel Aviv area, they said.