We shouldn't live under an illusion - it is not the price of cottage cheese, not the price of gasoline, nor the price of healthcare or education, even though these are important issues that need to be dealt with. The engine behind the protest is the scandalous price of apartments in Israel, and the shattering of the young generation's dream to buy an apartment to live in.
The straw that broke the young generation's back was the rise in apartment prices by 50% over the past three years. In terms of an average apartment (not new, and not in Tel Aviv), prices rose by NIS 350,000. In terms of 15-year mortgages, this means an additional NIS 2,750 per month. A young couple with an income of NIS 10,000 net a month (NIS 15,000 gross), now needs to pay an additional 25% of its net salary to pay for this extreme rise in Israeli apartment prices.
This couple has no choice except to go out and protest. An average apartment costs an amount equal to 127 months of an average salary, compared with 93 months of salary that it would have cost ten years ago, 66 months 20 years ago (just before the Russian speaking immigration) and 50 months of salary 40 years ago. The young generation's protest movement is clear and understandable - they have lost hold of the dream that their parents were able to fulfill, to buy an apartment.
In order for the solution not to remain theoretical, I have prepared a full proposal for the young generation that includes twelve clauses. You can copy and use them, there is no copyright. The solution is specific and immediately applicable. It is extremely simple and everyone can understand it. There is no risk or physical limitation to applying it immediately.
The main points: The law will cause supply to be greater than demand for a parcel of land. The value of the land will decline more than 50% and no one in Israel will want to sit on land that has no return. In this field, the domino effect (the first one falls and pushes everyone else down) is completely effective. If supply in Netanya rises, for example, and prices decline, people will begin moving from Herzliya to Netanya, and then prices in Herzliya will also go down. Then people will begin moving from Ramat Gan to Herzliya, etc.
Wanted: Infrastructure
This solution will cost the state budget NIS 3 billion a year, which will result from a loss of income from the sale of land (the state sold land for 20,000 units in 2010 and on average sells land for less than 25,000 units per year). The value of the increased supply for the young generation is more than NIS 10 billion a year (40,000 housing units a year are purchased from the state and private owners).
The largest and strongest monopoly in Israel is The Israel Lands Administration, which controls 95% of state land, and the Israeli government owns this monopoly. When there is a lack of supply, prices rise. Increasing the supply of land all over the country is the only way to bring down prices in all regions, and it is the government that must supervise the amount of land offered so that prices will remain reasonable. The current situation is a market failure, and therefore according to economic theory - there must be intervention in setting the prices and amounts of land in supply.
In parallel with the law proposed here, and as an extremely important part of it, a much more developed national infrastructure is needed in transportation (suburban trains and subways) that will allow much greater flexibility in choosing residence locations. Individual solutions for special groups and students, and building rental apartments for poor families, etc. are also important, but are not part of the macro plan, and therefore must be dealt with separately.
If the government has the sense to pass this law (or a similar one) while at the same time adopting economic policies that support growth and investment, I believe that within ten years the standard of living of the citizens of the State of Israel will rise by more than 30%, and the middle class will benefit the most.
I believe that a majority of Knesset members can support this law, and that it conforms to Netanyahu's "Supertanker" plan principles. Adopting this law now will bring about an immediate decline in apartment prices, to the level outlined in the law, because the majority of the public will no longer be willing to pay prices that are higher than the "target price" determined by the law. This way, and only this way, will we be able to solve the price problem within a month.
Bill to regulate apartment prices in Israel
A.Whereas in the State of Israel more than 40,000 new households are created every year,
B.And whereas about 95% of the land belongs to the State of Israel,
C.And whereas there is a lack of land for housing, and housing prices have recently risen considerably and irresponsibly,
D. And whereas the government, which has a monopoly over the land, must regulate the supply of land for housing so that apartment prices reflect reasonable affordable prices for its citizens, the government, together with a majority of Knesset members, presents a bill whose goal is to regulate the housing market as follows:
1.The government of Israel is required to allocate 50,000 new land units for housing every year for twenty years, totaling 1,000,000 new units, subject to the revisions set forth below.
2.The government must ensure that these units pass all planning and construction committees so that within twelve months from the day they are allocated to the public (through sale), all licenses and building permits will have been obtained.
3.The allocation of land will be in high-demand areas, according to the current breakdown of the population in Israel, by city and regional council (for example, a city that comprises 3% of the population will receive a 3% allotment, or 1,500 units.)
4.The land will be allocated to the public in open tenders, with no minimum price requirements. The Ministry of Construction and Housing, in coordination with the Ministry of Finance, will set the procedures for tenders, and the Ministry of Construction and Housing will be directly responsible for fully implementing them.
5.The price of an apartment according to this law is the national average price of owned homes, to be published by the Central Bureau of Statistics quarterly.
6. According to the Central Bureau of Statistics, the price of an "average apartment" in the first quarter of 2011 is NIS 1,110,000.
7.The target price for an "average apartment" according to this law is NIS 800,000, linked to the residential construction inputs index for June 2011. The price will be increased 1% each year to represent the apartment's appreciation.
8.The government will examine the situation at the end of each year, starting at the end of the second year from the application of this law.
9.If the real price is higher than the target price, the government will increase its annual allocation by 1,000 land units for every deviation of NIS 10,000, linked to the residential construction inputs index.
10.If the real price is lower than the target price, the government will decrease the land allocation by 1,000 units for every deviation of NIS 10,000, linked to the residential construction inputs index.
11.At the end of June each year, the prime minister will present to the Knesset a summary of the housing situation, housing prices, and government activity connected to the housing law during that past year.
12.The housing law will be updated after ten years, in accordance with the experience accumulated and the situation of housing prices in Israel.
Published by Globes [online], Israel business news - www.globes-online.com - on August 1, 2011
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