(Photo: Tomoriko, Yedioth Aharonoth)
More and more young couples say they do not know how they will be able to ever buy a home.
(Photo: Tomoriko, Yedioth Aharonoth)

Israel moves to address runaway housing prices

Consumers struggling to make ends meets say new move to eliminate sales tax for first-time apartment buyers is not enough; long term answer is building more homes, say experts.

Shoshi and Yitzhak (an Israeli couple, not their real names) got married almost two years ago, and since then they’ve been looking for an apartment. Yitzhak is a career army pilot, making what by Israeli standards is an excellent salary of over $4,000 per month. Shoshi is doing a Masters in social work, and works part time. Yet they say they can’t find an apartment they can afford.



“I knew apartments were expensive, but I didn’t realize just how much until I really started looking,” Shoshi told The Media Line. “We just can’t find what we want in the price range we want. Everything is too expensive.”


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She says that with savings, and a monthly mortgage, they can afford to buy a three-bedroom apartment that costs up to $430,000. But most apartments in Jerusalem start at $515,000, she says, and climb from there.


Now a new plan being promoted by Israeli Finance Minister Yair Lapid would eliminate the 18 percent sales tax or VAT (value added tax), for first-time home buyers under certain conditions. The buyers must have at least one child, and one of them must have served in the Israeli army or done alternative national service. The couple must reside in Israel and agree not to sell the apartment for five years.


The proposal may prove controversial as it will exclude Arab citizens of Israel, and ultra-Orthodox Jews, both groups of which don’t serve in the army and yet have high poverty rates.


The proposal is expected to be voted on by the Ministerial Housing Committee next week. If passed, the measure is expected to cost the state as much as $578 million dollars annually in lost tax revenue, but could help young couples like Shoshi and Yitzhak.


At the same time, the immediate effect could be to put the housing market in a deep freeze until the legislation is passed.


“Now we’re rethinking everything,” Shoshi said. “We may stop looking for a while until we see what is going to happen.”


Lapid, a former television personality and first-term lawmaker, focused his election campaign on trying to help middle-class Israelis who pay taxes and serve in the army, and are increasingly unable to make ends meet. He was responding to large-scale protests during the summer of 2011, in which hundreds of thousands of Israelis took to the streets to demand lower housing prices and a number of socio-economic changes.


Relative to salaries, housing prices in Israel are double the average of citizens of other OECD (Organization for Economic Cooperation and Development) nations with similar economies. Israelis need 191 monthly salaries to buy a five-room apartment, compared to 90 salaries in France, 71 salaries in the United Kingdom, 60 salaries in the United States, 54 in Germany and just 30 in Sweden.


According to the Ministry of Finance, about two-thirds of Israelis currently own their own home. But more and more young couples say they do not know how they will be able to ever buy a home.


“Unlike in the US or Europe, here in Israel the culture is to buy a house rather than to rent,” Guy Ben Porat, a professor of public policy at Ben Gurion University told The Media Line. “When people buy a house, they incur a huge debt. It also leads to a strong feeling of uncertainty because people have to pay a huge mortgage for 25 or 30 years. It means you depend on having a steady income. If you lose your job, you can go from being middle class to lower class in minute.”


While eliminating the sales tax for first-time buyers could help, the long-term answer is simply building more homes, Israeli analysts say.


“There is simply not enough housing built mainly because of government red tape – the Israel Lands Authority doesn’t free up enough land to build on,” David Rosenberg, the economics editor for the English-language Ha’aretz newspaper told The Media Line. “In the housing market any steps will take years to have an impact. The range of most politicians is only to the next election. It seems that Lapid is looking for something he can point to as doing something but it won’t make that much of a difference.”


The housing issue dominates the conversation of young families. Sam Ser lived in Israel with his wife and two young boys, before leaving in 2012. The main reason they left, he said, was financial.


“I was a journalist and my wife had a PhD in English and was working for an English-language high school program here,” he told The Media Line. “We were middle-class but we couldn’t live like we were middle-class. We had no way to afford the down payment.”


Renting an apartment in Jerusalem ate up a significant part of their salaries, he said. Ser and his family moved to West Bloomfield, Michigan, not far from Detroit. They bought a nice three-bedroom house with a two-car garage and a large backyard for $135,000. They even get a tax credit for their mortgage payment.


Ser says that if the government really wants to help young families like his, they should offer tax credits for mortgages and day care payments. Eliminating the sales tax for some first-time buyers, he says, doesn’t go nearly far enough.


Article written by Linda Gradstein


Reprinted with permission from The Media Line


פרסום ראשון: 03.18.14, 23:17
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