Liberman promises ‘dramatic’ initiatives to stem rising housing prices

Finance Minister Avigdor Liberman has committed to bringing forward new plans in early May to tackle Israel’s housing crisis.

In a meeting with the National Builder’s Federation last week, Liberman said that he was working with both the Interior Minister Ayelet Shaked and Housing and Construction Minister Ze’ev Elkin on a new approach that, he said, would be “dramatic” and “lead to profound changes” that seek to address the housing issue in a holistic way. He gave no further details.

The National Builder’s Federation said its president, Raul Srugo, complained to the finance minister that successive governments have touted “incomplete plans…that fail to address the housing crisis properly for nearly 20 years now.

The government earns “huge revenues from the construction industry,” said Srugo, suggesting that it could “use this money to stop the madness of [rising] housing prices.”

According to the most recent figures, housing prices increased by more than 15 percent over the last year. On average, prices are rising across the country by 1.2% per month, although central areas have seen increases of nearly 18% in a 12-month period.

This is concerning news for a coalition that has already committed to limit rises in 2022 to 6%, and has suggested that it can deliver a drop in prices in subsequent years.

A building under construction in Jerusalem on November 10, 2021. (Yonatan Sindel/Flash90)

Over the past weeks, the Finance Ministry has set out some new principles, including a new approach to the sale of land for development by the Israel Land Authority. At the moment, unless the land is designated for government-subsidized housing, the winning bid is automatically the highest.

It has been suggested that this could be replaced by a system in which the state sets a maximum price for land according to the region, and awards it to the contractor who can offer to build apartments at the lowest price. Developers would also be required to finish construction projects within three years of receiving the land. This would be a similar approach to the recently terminated “Buyers’ Price” affordable housing scheme (Mehir LeMishtaken), which has been criticized for delivering poorly built apartments.

Another idea that is circulating is a proposal to increase the purchase tax on fourth and subsequent apartments to 12.5%. This would apply only to new apartment purchases, therefore it would not affect existing owners of multiple properties but would, in theory, deter new investors from building up networks of properties to rent out. Former finance minister Moshe Kahlon previously tried to introduce something similar with a tax on the purchases of third apartments, called the “third apartment tax,” but failed.

Costs for housing investors have already risen considerably with a purchase tax hike from 5% to 8% on second and subsequent homes introduced in late November 2021. There is some evidence of cooling demand from investors as a result.

But Israel faces a number of underlying issues that affect housing prices, such as rapid population growth, government-controlled supply, lack of infrastructure, and rising inequality, economists and experts have said.