Israel's Housing Minister Considering New Tax on Vacant Land

Housing Minister Atias has proposed reviving the levy, as a way of freeing up more land for development.

Housing Minister Ariel Atias recently suggested levying property taxes on landowners who do not exercise their building rights on land they own.

These people have been criticized in recent years for allegedly trying to reduce the housing supply and inflating land prices. A property tax law was enacted in the 1990s when the country was facing a much more serious land crisis than it does now, but it was dropped from the books 12 years ago after the Knesset concluded that it was problematic.

Ohad Dannus, head of the Israel Real Estate Appraisers Association, is one person who supports reinstating the tax on vacant land, which he says "is the most social and just tax that has ever existed in Israel."

However, attorney Tzvi Shoob counters that "it placed a particularly heavy burden on the public, and mainly created jobs for attorneys and appraisers."

1. What is property tax?

Property tax is levied on the owner of a vacant plot at an annual rate of 2.5% of the land's value; it is designed to encourage landowners to build on land or to sell it to someone who will develop it. When in force, the tax affected some 120,000 landowners a year.

2. Why was the tax rescinded?

It was rescinded because it turned out that the state was preventing landowners from building while simultaneously charging them for leaving their land vacant. Shabtai Azriel, who founded a nonprofit called Victims of Property Tax, offers several examples: The Netanya dump was actually on private land, and the owners of various parts of the property were charged NIS 20,000 a year. The same thing happened to people who owned problematic property including archaeological sites, near the smokestacks in Hadera, along the fence at Sde Dov airport, alongside train tracks, near the Haifa highway, under high-tension lines, on sites with oil pipelines, in areas used by the military and in places lacking planning approval.

"There were cases where landowners didn't know where their plot was but were charged the tax," says Azriel.

3. If the tax was so problematic, why does Atias want to reinstate it?

Atias is aware that the tax in its former form was problematic. Therefore, he is proposing taxes for land that the state can prove is zoned for construction.

4. If it seems like a good idea, why is it drawing criticism?

First off, 90% of land owned by the public is not ready for or awaiting construction. Thus, such a tax would only push owners to build on only a small percentage of privately held land. Would this really increase the housing supply that dramatically?

Furthermore, there's something unfair about this tax. For the past several months, the Israel Land Administration has not been able to sell land at the pace it sold last year, because the market is not as good. Under these conditions, private landowners are having trouble building on or selling their plots, too. Is it fair to charge them taxes simply because the real estate market is slowing down?

5. Would such a tax benefit tycoons?

Dannus argues that dropping the tax benefited tycoons and enabled them to amass property. That may not be true. A large proportion of the land in tycoons' hands is ILA property. In theory, the state shouldn't have any problem encouraging the owners to build on such land, or it could take it back. It doesn't need a special tax for this.

6. Who would profit from the tax - and who would lose?

Ultimately, beneficiaries would include the Finance Ministry, of course, which would be reaping millions of shekels. Plus appraisers and lawyers who represent landowners in their appeals. The losers would obviously be private landowners, who would be footing the bill.