Study: Ashkenazi neighbor raises property value
After examining apartment prices in 76 communities, chief governmental assessor finds Israeli buyers ready to pay much more for 'neighbors of high quality'. Flat prices influenced by residents' income and education levels more than by quality of homes
The extensive research was conducted by Eyal Yitzhaki, the Justice Ministry's chief governmental assessor, who examined the different effects on real estate prices in Israel.
'75% of price based on nature of neighbors'
According to the study, based on an examination and comparison of apartment and land prices and on surveys and interviews with apartment buyers in 76 communities in Israel, 75% of the variance between apartment and land prices stems from the nature of the population, and less than 25% stems from the characteristics of the flats themselves, including their physical condition and location in terms of the buyers' workplaces.
In other words, the study's statistically significant finding was that home buyers take social stigmas into account more than any other consideration, including the technical implications of the apartment's location.
The study was held in 38 moshavim and 38 small towns and communities in the secular Jewish sector – including Be'er Yaakov, Azor, Beit She'an, Zichron Yaacov, Givat Ze'ev, Kiryat Shmona, Rosh Ha'ayin, Ramat Hasharon and Kiryat Gat. It compared the prices of plots of land in the moshavim and the prices of apartments in buildings in the urban communities.
The research looked into the size of the properties, the finish level, the apartments' age, the physical and planning depreciation, and compared the prices of properties with different physical characteristics.
The analysis found a difference of hundreds of percentage points between properties with identical physical characteristics.
'Large families reduce property value'
The researchers discovered that the variables affecting property prices include the average wage in the community, the average level of education and the number of residents with an academic degree, and the average number of children per family, with larger families reducing the properties' value.
The study also found that education can affect a property's price by more than 70%. Education influences property prices in moshavim more than the population's economic figures, while in the city – the economic data influence the property value more than education.
The residents' descent also has an influence on the property prices: In communities with a high percentage of residents of "European and American descent" (Ashkenazim), home prices are significantly higher than in communities with a higher percentage of residents of "Asian and African descent."
The study did not refer to the descent of residents born in Israel, but only examined the influence of the origin countries of residents born abroad.
The research also found that the community's distance from the three large cities – Jerusalem, Haifa and particularly Tel Aviv – had an effect on the property value, regardless of the nature of transportation in the community and the buyers' accessibility needs.
'Strong populations' abandon 'weak environment'
The study also revealed that the average price of a four-room apartment in Israel stood at NIS 713,000 ($184,000) at the end of 2008. According to the survey, the price of a four-room flat in the northern city of Kiryat Shmona reached NIS 281,000 ($72,000), while a similar apartment in the central city of Ramat Hasharon cost NIS 1.52 million ($390,000) at the time.
According to the data, the average price of a plot of land in a moshav stood at NIS 2.54 million in 2008. The differences between plot prices in moshavim are much bigger than the differences between apartment prices in cities: A plot of land in Moshav Beit Hagdi in the Lachish region cost NIS 700,000 ($180,500) at the time, while a similar plot in Moshav Udim, south of Netanya, cost NIS 6 million ($1.5 million).
"It's different from other products, where the level of benefit is only determined by the traits of the product itself. The level of benefit and enjoyment from housing property is highly influenced, by hundreds of percentage points, by the characteristics of other apartment owners in the area," the researchers wrote.
They added that the average value of a four-room apartment in an area where the average gross salary is NIS 11,000 ($2,800) a month is about NIS 1 million ($260,000) – 45% above average.
According to the researchers, "The strong link between the property price and the population's characteristics stems from several reasons. A population with a high socioeconomic level pays higher local taxes, contributing to the quantity and maintenance of the shared areas, which increases the level of welfare and benefit from the private properties.
"The awareness of quality of life and environment protection is perceived as higher among educated and well-established populations. The consumption level of a well-established population is higher, so its surroundings is more accessible and has a larger variety of products and services, including commercial areas, classes and social activity, recreation and culture areas."
Nonetheless, the study determines that "a population perceived as being of 'high quality' creates a positive image (stigma) and increases the demand for housing property due to the consumer's desire to belong to a more prestigious group. It creates a 'homogenization' system of neighborhoods.
"When the strong population in a weak environment can afford upgrading its dwelling place to a stronger environment, it leaves. At the same time, weak and uneducated populations abandon the expensive areas due to economic constraints. This process creates residential areas where the population's level is homogenous, with a very slow variation."
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