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Analysis

In unveiling major housing program, government signals more of the same

Building more homes remains the key weapon in the fight against soaring housing prices, but it’s unclear the government can deliver

Housing construction in Holon. Illustrative. (100 via iStock by Getty Images)
Housing construction in Holon. Illustrative. (100 via iStock by Getty Images)

The government announced a new program for the housing market on Sunday, but, after months of promising major new initiatives, its bundle of measures continues in the same direction as its previous efforts.

The joint announcement by the finance, interior and construction ministries promised 70,000 new housing starts for each of the next four years. This number is the same as the plans announced last fall, which failed to stem soaring prices. Recent figures have shown that housing prices rose by 16 percent over the past year, the highest figure in over a decade, with substantially steeper rises in some parts of the center of the country.

Last year, a record-breaking 63,000 homes broke ground, but the Israel Builders Association has suggested that around 100,000 housing starts are needed annually to meet rising demand.

This year, the government has said, around 30,000 homes will be made available through the discounted “Target Price” program.

To help to deliver on the promised numbers, the ministries involved said they will issue planning approval for 125,000 homes each year, alongside 75,000 tenders for housing units on state-owned land and successful construction tenders for 45,000 units.

But in order to achieve anything near 70,000 new housing starts, there would have to be faster processing and less bureaucracy around the construction approval process. Earlier in the year, plans were announced to streamline decision-making for business properties. There are some indications that faster decisions can be made on residential projects, but many delays occur at the local level. Recognizing the potential blockage, ministers are now promising to help scale up municipal engineering departments to accelerate the rate at which building decisions can be made in local areas.

The government has also announced that it will support the development of two modular construction plants to deliver much faster prefab-style building of the sort that other fast-growing populations are turning to. It will also subsidize international transportation costs for early buildings of this type. The modular construction market is growing fast and Israeli-led businesses such as Veev, which maintains R&D in Tel Aviv but builds in the United States, are leading innovators in this space.

The announcements in relation to the Target Price discounted apartment program were hailed by Minister Ze’ev Elkin last week. Now the joint ministries have confirmed that winners in the housing lottery (which has already been vastly over-subscribed) can expect a higher discount of up to NIS 500,000 ($148,994), with an extra NIS 40,000 ($12,000) for those buying outside central cities.

There will be an attempt to grow the number of affordable homes available in the center of the country by around 10,000 units. This expansion comes with a promise that around 80% of these extra homes will be allocated to those who are eligible for supported housing of some sort. The government also says that it intends to incentivize large-scale sheltered housing complexes.

Going forward, area housing lotteries will prioritize those classed as locals. The amount of time needed to live in an area to qualify for this status will vary from 18 months in rural and less in-demand areas to three years in the most popular parts of the country.

Some provisions are already in place to give preference in lotteries to local people, but now the proportion of homes allocated to such residents will rise to at least 35% in all areas, and up to 40% in those projects or locations that the government chooses to prioritize.

The government also plans to do more to manage the final price of homes bought under the Target Price scheme. Its proposed approach is to ensure that the steadily rising Construction Index applies strictly to construction costs only, excluding the land component and contractors’ profit margins that also contribute to overall apartment cost, and denying developers the option to pass on their legal fees to the buyer.

Delivering on this requires a change to the Sale Law of 1973. The amendment has already been approved by the Israel Lands Authority and will be applied to contracts within the lottery process. But in order to apply it broadly, it must go through the Knesset Finance Committee before returning for a second and third reading in the plenum.

Meanwhile, agreements outlined in January with regional authorities will seek to encourage them to increase housing construction (2,500 permits for each of the next four years). Municipalities will also receive grants to help pay for public buildings and other infrastructure, to support growth.

All these announcements are principally focused on the homebuying market. The only reference to the approximately 30% of the population who rent homes is a promise in this week’s announcement of a plan to amend regulations so that local authorities are incentivized to use urban and industrial areas to create more rental housing. With rents officially up around 10% in the first couple of months of 2022, and anecdotally by much more than that in some areas such as Tel Aviv, this significant proportion of the housing market continues to suffer.

Finance Minister Avigdor Liberman has argued that “the plan we presented today is comprehensive and addresses failures in the housing market. ”

Construction and Housing Minister Ze’ev Elkin made his focus clear: “We promised to leave no stone unturned in order to bring solutions to young couples and prioritize apartment buyers over contractors, and we are.”

But recognizing the plan’s limitations, he also promised further measures soon to “stabilize the real estate market in Israel.”

Interior Minister Ayelet Shaked said: “We continue to work hard and fight the housing crisis… it is my overarching task in office and despite the political instability we are not taking our foot off the gas for a moment.”

Those who study the housing market and campaign against its inequities believe that more than any other area, it requires stable government and sustained focus, something Israel has been sorely lacking in.

Gil Gan Mor, head of the Social and Civil Rights Unit at the Association for Civil Rights in Israel, said: “In housing, you need a good continuous policy, and political disruption works against that. With coalition crisis after coalition crisis, there is no focus or ability to deliver what the country needs.”

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