New plan aims to entice cities to construct housing with NIS 60 million bait

To resolve housing crisis, government will reward 12 high-demand municipalities with cash for each apartment approved; project could add 30,000 new units in the next three years

Cranes working at sunset on a construction site in Jerusalem, September 1, 2021. (Nati Shohat/Flash90)
Cranes working at sunset on a construction site in Jerusalem, September 1, 2021. (Nati Shohat/Flash90)

Housing Minister Ze’ev Elkin is reportedly pushing a plan that would create tens of thousands of new housing units in the coming years by offering some cities millions of shekels as an incentive for approving construction projects.

The proposed plan is part of a government drive to rapidly increase the supply of apartments in the hopes of reducing prices and combating Israel’s spiraling housing crisis.

Under the terms of the plan, as reported Sunday by Channel 12 news, for every apartment granted approval, a city will receive NIS 25,000-30,000 ($7,800-$9,400) from the government. To qualify, participating municipalities must approve at least 2,500 new apartments over the next two years, which would earn them up to NIS 62.5 million ($19.6 million) to invest in roads, schools, parks, infrastructure, water and sewage.

The budget for the plan is expected to reach NIS 440 million, according to the report, which did not say when the plan will be launched.

The 12 cities addressed by the plan are Jerusalem, Lod, Bat Yam, Kiryat Ono, Haifa, Netanya, Givatayim, Ramat Gan, Ashdod, Beit Shemesh, Hadera, and Kiryat Yam, the report said.

If all of the cities meet the minimum requirements, the plan would add some 30,000 new apartments in the next three years.

“Today we are in practice removing the most significant barrier to promoting urban renewal in the big cities in Israel,” Elkin said.

He said the plan had the potential to generate “tens of thousands” of permits for housing units in the coming years.

“This will allow us to change the old neighborhoods in these cities and put very many apartments in the market,” Elkin said.

Housing Minister Ze’ev Elkin speaks during a press conference, presenting new reform on housing, at the Finance Ministry, Jerusalem, October 31, 2021. (Yonatan Sindel/Flash90)

The plan hopes to overcome reluctance by municipalities to pursue urban renewal projects that are not always financially beneficial, as the gains from new housing are offset by the rising cost of maintaining services for larger populations, the station said.

Figures from the Urban Renewal Authority show that in 2019 Haifa only granted 1,685 new housing permits, Ramat Gan 800, Ramat Hasharon 580 and Bat Yam 550.

In October the government announced an ambitious housing plan for 2022-2025 to address the crisis.

The plan — put together by the Finance Ministry, Housing and Construction Ministry, and Interior Ministry — consists of setting a number of planning and development goals for the government.

A joint statement at the time from the involved ministries said the planned moves would cut through the bureaucracy and overhaul Israel’s real estate landscape, and rapidly lower prices.

The plan set a target of 280,000 home construction starts over the next four years, significantly more than in recent years; advancing plans for 500,000 more housing units; publishing tenders for 300,000 homes on state-owned land; and having 180,000 successful such tenders.

Reforms aimed at helping to reach those goals include reducing bureaucracy in general, particularly for unique housing projects — such as ones that aim to demolish old buildings to rebuild new ones in their place — and projects that convert offices to residences.

View of a construction site in the central Israeli town of Beit Shemesh on September 5, 2021. (Nati Shohat/Flash90)

The cost of buying a home has been skyrocketing in Israel in recent years.

During mass protests in July 2011 over the rising housing expenses, the average price for a four-room (three-bedroom) family apartment in Israel stood at approximately NIS 1,450,000 ($450,000 per the current dollar-shekel rates, and about $402,777 in late 2011 when the average rate was 3.6) — and was considered high at the time.

By June 2021, the average cost of a four-room apartment in Israel was roughly NIS 2,200,000 ($682,608), according to quarterly and annual research by the Alrov Institute for Real Estate Research at Tel Aviv University’s Coller School of Management.

A 2016 study found that 30% of annual home purchases were made for investment. Whereas in 2008 only 2% of Israelis owned two or more homes, now that figure is 10.5%, and among those in the top income decile, it’s some 35%.

People looking to buy an apartment must come up with roughly NIS 840,000 ($261,140) in personal equity, according to a separate study for the second quarter of 2021, up from NIS 760,000 ($236,269) in the year’s first quarter. This sum includes a down payment of at least 25% according to Bank of Israel rules, closing expenses, taxes, lawyer fees, and other surrounding costs.

Ricky Ben-David contributed to this report.

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