1. It's all true. The prime minister was indeed "the first to point to the developing problem in the housing market." Two and a half years ago, alongside the other ministers, he announced a housing revolution. The programs unveiled today too, like those of two and a half years ago, are important, varied, and impressive: at last, reform in the Israel Land Administration; at last, a reform is being formulated in planning and construction procedures; infrastructures construction along the length and breadth of the land; thousands of apartments in low-price projects; rental projects; student dormitories; and more.
The problem, of course, is execution. The doctor's diagnosis is excellent. The cure, however, is lacking. The same government that for two years has been trying without success to give the patient the antibiotic he so much needs the reform at the Israel Land Administration and in the planning committees a treatment that really could heal the market and release enough supply, has meanwhile taken alarm at the patient's cries, and this morning pulled out a bottle of analgesics - student dormitories, subsidized rents, cheaper public transport, and so forth without telling us why it will succeed in getting the bedridden patient to swallow that particular drug quickly.
This morning, for example, Minister of Finance Yuval Steinitz announced "a very rapid measure" involving the construction of 10,000 small apartments for students on "brown" land originally earmarked for public space. Now does anyone really believe that people living around the sites that will be designated at lighting speed, sites that for years they have been dreaming about and hearing promises that a community center, and senior citizens' center, a park, a synagogue, or some such thing, will be built there at any moment, that those people will let such a measure go ahead easily? And what will the former owners say when they see the land that was compulsorily purchased from them for the sake of a public building being sold at a knock-down price to a contractor who will turn a profit on it?
2. When it comes to execution, there is no point in drop-by-drop measures. Both the "occupier price" scheme, whereby land is awarded by tender to the developer who bids the lowest selling price for the apartments that will be built, and construction of rental projects, could turn things round rapidly, but only if they are carried out on a large scale, both in absolute terms, and relative to the neighborhoods and cities where they are located. For them to be on a scale that will have an effect on the price threshold in an entire area, then, among other things, the planning must be changed. Most of the apartments planned in the cities are large, and do not come into the relevant categories that make sense for the "occupier price" program, that is, apartments of around 100 square meters, that can be offered at reasonable prices.
Will a government that for a decade has failed to fulfill the basic requirement of the marketing and planning of land for 40,000 apartments a year for, suddenly manage to produce tens of thousand of apartments for rent, and thousands more by the "occupier price" method? Is the planning pipeline not blocked up anyway, even with the addition of Netanyahu's six special committees, without the added requirement for a stock of apartments for rent and low-price apartments for young couples? We'd really love to be optimistic.
3. Apart from the known problem of governance, the largest impediments that will weigh down the plans will soon come from some pretty powerful pressure groups: the local authorities, the developers, and the banks.
City mayors will not leap with joy at the prospect of an influx of young families, certainly in cheap and subsidized projects, that scarcely generate enough revenue for the municipality to support the resulting justified demand for more kindergartens, schools, public libraries, and so on. These mayors will fight tooth and nail to prevent the "brown land" being taken away from them for student dormitories, and that at zero cost, so that they will not see a shekel in betterment tax for urban development.
And the contractors, some of whom are suddenly stuck with land they bought at very high prices in the past couple of years, will do all they can to obstruct the flooding of the market with subsidized land, substantially cheaper than the price they paid under previous market conditions.
No less importantly, the banks, who are supposed to finance the whole affair, are already financing and lending to the same market (developers and home buyers) that has become used to the high prices. The banks have already taken their feet off the accelerator and are waiting to see what will happen next. They are no less perturbed than the developers at the prospect of government intervention that will lead to a steep drop in prices. Without the banks, the plans for selling off land will remain on the shelf.
4. The bottom line is that prices are already falling. New investors are looking for alternatives to the residential housing market; old investors are checking what their apartment in Tel Aviv or Beersheva will fetch. Young couples realize that tomorrow may bring cheaper opportunities. In general, it can be said that it has started to become a buyers' market (which also explains the pressure from the banks and the developers).
We should remind ourselves that, despite all the talk of a shortage that has lasted a decade, Israelis have not been living in the streets. A change in sentiment and general atmosphere (alongside greater toughness on the part of the mortgage banks) could certainly turn the trend around in the residential market.
But just before the government of Israel gives itself a round of applause, it must ensure that the real estate industry keeps running even if the market changes direction. If the banks stop credit because they prefer to sit on the fence, and if the developers decide to wait until the picture clears, the massive marketing of land will make no difference. In a falling market, which is now the dream of Netanyahu, Steinitz, and Atias, many land tenders remain without takers, and in a few years' time we will again be able to talk about the housing supply that did not keep pace with the growth of the population.
Published by Globes [online], Israel business news - www.globes-online.com - on July 26, 2011
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