Lapid resolute on housing plan: ‘Let me do my work’

Finance Minister Yair Lapid maintained on Wednesday that his plan to eliminate the 18% value-added tax for families buying their first apartment will substantially lower housing costs in Israel, telling detractors and critics, “If you don’t have any idea how to solve the problem, let me [do my] work.”

Lapid has faced scathing criticism over the plan from economists, pundits and even officials in his own Finance Ministry, many of whom have called the plan populist and said it could backfire and lead to higher prices.

But the finance minister insisted at a Jerusalem housing conference that “housing prices are about to go down.”

“Economists, politicians and interested parties have said in recent days that removing the VAT on new apartments is not the right step, even if it leads to reduced housing prices,” Lapid said. “That’s just fine, because the VAT reduction isn’t intended for economists, politicians and interested parties. It is intended for young people from the middle class who served in the army, who are trying to build a family.”

“Where were you in recent years?” Lapid asked his critics. “Where were you when the collapsing [young] generation began eyeing Berlin and Canada? Where were you when prices skyrocketed without any actual reason? The land is the same land, the cement is the same cement, the cranes are the same cranes — but prices won’t stop climbing.”

Opponents of the finance minister’s plan have not voiced opposition to Lapid’s goal, but rather to his proposed means.

Bank of Israel Governor Karnit Flug on Monday warned that some elements of the new measures were likely to have negative consequences. She noted specifically that the sudden lowering of housing costs would create a spike in demand, which would likely increase the cost for those ineligible for the benefits — and even for the eligible would effectively transfer much of the savings from the buyers to the contractors.

Economic commentator Nehemia Shtrasler was one of the journalists who came out against the plan, writing last week in Haaretz that it evinced “a basic misunderstanding of the rules of economics” and was driven only by populism.

“The demand for apartments will only rise due to the lowering of the VAT,” Shtrasler wrote. “Not only will there form a long line of young people waiting for the reduction (to take effect], but new buyers will enter the market who will want to take advantage of the benefits while they last. And this great excess of demand without there being any change in supply will cause home prices to go up at an even greater pace.”

The Finance Ministry’s director of Economics and State Revenues, Michael Sarel, seemed to share the sentiment. Sarel tendered his resignation last week, saying there was “widespread agreement among professionals” that lowering the VAT was not the right step, and that implementing Lapid’s decision would represent “a colossal professional failure” on his part.

Meanwhile Haaretz reported Wednesday that Lapid had agreed to ease eligibility requirements for the exemption after Attorney General Yehuda Weinstein warned him that he could not defend the program in its current form.

The clause that stipulates that only those who have participated in military or national service would qualify for the benefit effectively ruled out most Israeli Arabs and ultra-Orthodox citizens. Weinstein’s objection to the requirement reportedly led Lapid to strike it from his proposal.

On Monday a cabinet committee approved the measure, along with a second plan intended to lower housing costs, under which contractors who commit to low final-sale prices in government housing tenders will be eligible to receive state land at a reduced rate.

The two plans still have some distance to go in the Knesset before winning final approval.

Haviv Rettig Gur contributed to this report.