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A Netanyahu Candidate for Finance Chief Would Have to Do His Homework

Sami Peretz
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Prime Minister Benjamin Netanyahu and Likud's Nir Barkat speaking in Tel Aviv, February 2020.
Prime Minister Benjamin Netanyahu and Likud's Nir Barkat speaking in Tel Aviv, February 2020. Credit: Tomer Appelbaum
Sami Peretz

The campaign marketing Likud legislator Nir Barkat as Benjamin Netanyahu’s choice for next finance minister didn’t go well. The former Jerusalem mayor was exposed as a frivolous person, not because he failed the pop quiz Army Radio gave him – how much does a loaf of bread cost? Many people in Israel know how much bread costs, but that doesn’t qualify them to be finance minister.

Barkat, who’s eyeing that job and aspires to reduce both food and housing prices by 30 percent, is expected to be at least a little familiar with what governments have done over the past decade on these issues.

Well, you’d be surprised to learn they’ve done quite a lot. Since in the summer of 2011, Netanyahu governments have taken steps including – an easing of barriers on imports – reduced tariffs and reformed the Standards Institute, yet food prices have barely changed.

The situation in is even worse. Under Netanyahu, the government has instituted the so-called balcony reforms for simple construction plans, increased the supply of land, introduced the Buyer’s Price program – which offers apartments at reduced prices to certain first-time home buyers – subsidized land, increased the tax for people buying a home for investment, signed agreements with local governments to speed up construction and increased the inventory of planned apartments.

Despite all this, housing prices kept increasing. Even last year, after all these steps kicked in, housing prices rose 3 percent.

Why have these reforms failed despite the investment of thousands of hours in debates, meetings and committee work on top of money? More impressive results could have been expected.

One possibility is that the situation would be even worse without these reforms. Another is that the government made a fuss out of nothing and its initiatives simply haven’t been effective.

This is certainly the logical conclusion when evaluating the Buyer’s Price plan, which stokes demand for housing and is based on lotteries in which too few people win a subsidy for too high a price – around 7 billion shekels ($2 billion).

Yet another possibility is that the government knows exactly what’s needed to lower the cost of living but always runs into opposition from lobby groups and capitulates, finding itself with a cost of living 19 percent higher than the OECD average.

There’s another explanation. When entered the job in 2015, the goal was to lower housing prices by around 15 percent. Avigdor Yitzhaki, who was appointed head of the ministry’s housing team, said he intended to market land for building 65,000 apartments a year and that if housing prices didn’t fall 15 percent by the end of 2017, he’d resign.

They didn’t fall, they kept rising. The state didn’t sell enough plots but sufficed with 50,000 housing units. Yitzhaki quit but stayed in the business of lotteries; he was appointed chairman of the national lottery.

Since then, we haven’t heard Kahlon or Netanyahu talk about lowering housing prices. At a certain stage they realized that lowering prices significantly in any industry requires battles that can damage you politically. For example, 66.5 percent of Israelis are homeowners, and they’ve felt rich over the past decade due to the surge in housing prices.

Feeling rich is an important political asset because it enables an increase in private consumption and growth. A sharp decline in housing prices may please young adults who lack housing, but it will irk homeowners, who comprise the majority. Kahlon and Netanyahu didn’t want to upset them or others at the center of the cost-of-living debate – mainly the food industry.

Barkat can recite slogans about a free market and a lifting of tariffs and restrictions, but until he does his homework and recognizes the opposition and its veto power, his declarations are meaningless. When he pledges to break up monopolies but ignores Israel’s biggest monopoly – – he proves he’s not keen to fight the strongest groups responsible for the increase in the cost of living.