Treasury Reveals Thoughts on How to Lower Housing Prices

Four-step plan includes new property tax formula and scheme to compensate farmers for loss of arable land.

The Finance Ministry is working on a four-step plan to lower housing prices that aims to increase the supply of homes by tens of thousands of units.

The four steps boil down to changing tax on property to discourage buying for investment purposes; to reach an agreement on compensating farmers for loss of arable land to housing projects; to include the cost of building public institutions in development costs paid by builders; and to cut red tape in the construction industry.

On Sunday the governor of the Bank of Israel, Stanley Fischer, threw down a gauntlet. He would not let sky-high housing prices drag the country's economy into a downward spira, he said. "We hope the problem will be solved by the supply side. If not, we have enough ways to solve it on the demand side." Fischer did not say what steps the central bank would take if forced to act to keep down housing prices.

Finance officials have yet to formulate final recommendations on tax. One possibility suggested by tax officials is to abolish betterment tax exemptions on second apartments or those bought for investment purposes. Finance Minister Yuval Steinitz vetoed the idea after it leaked and was published in TheMarker. Now the idea may be resurrected.

Another idea is to reach an agreement with the farm sector over compensation for turning farmland into housing. For now, the cabinet will be asked to approve the establishment of an interministerial committee. Some 12,000 homes are planned on farmland in the center of the country, but the inability to reach an agreement with farmers over compensation is holding up the plans.

Another suggestion is to include all development costs (roads, sewage systems) in the original tender. Today, local authorities are often in conflict with the Israel Lands Administration and ministries over who pays for such costs - and this may delay projects for years. This also includes construction of public buildings for housing projects, such as day-care facilities, schools and synagogues.

One step that seems to be working is the new interministerial committee set up exactly to solve such disputes between ministries and other government bodies. So far, the committee has solved problems that held up building some 15,000 homes.