Prof. Eran Feitelson of the Department of Geography at the Hebrew University of Jerusalem, an expert in land policy, is highly critical of Prime Minister Benjamin Netanyahu's appointment of Moshe Kahlon as chairman of the Israel Land Administration Council, saying that it will cause more harm than good.
Feitelson says that the government decision to flood the market with land is "playing with fire", and that it must not cause housing prices to slump for fear of "impoverishing households". He called on the government to adopt a diversified and sophisticated policy for the housing market, which would include affordable housing, subsidized mortgages, and public housing as a solution for the housing shortage.
"There is no doubt that Kahlon is a man of action and a good man, but his appointment as chairman of the Israel Land Administration Council will likely cause more harm than good, and create an insoluble dilemma," says Feitelson. "The minister of housing traditionally has two levers to use: one is the planning of land policy, and the other is the financing of construction. If Kahlon is appointed as chairman of the Israel Land Administration Council, which is responsible for land planning policy, then the next minister of housing will effectively lose one of his main levers, crippling him."
"Globes": How do you see this maneuver? In your opinion, is this a rabbit that Netanyahu pulled from his hat ahead of the elections?
Feitelson: "I hope that it's a rabbit, because if this is a real move, it's very bad. It will harm the housing market."
When Kahlon promises to lower housing prices, is he misleading the public? After all, he has a track record in the mobile sector.
"Either he doesn’t know the material, or he is being misleading. With all due respect, the Israel Land Administration Council chairman does not set housing prices in any way. The person who can really have influence is the minister of housing, if he has the government's backing. As Minister of Communications, Kahlon had authority over the mobile market, but what can he do as chairman of the Israel Land Administration Council?"
What can he really do to lower housing prices?
"The Israel Land Administration Council is responsible for land policy, but not for implementing the policy. The Israel Land Administration is responsible for performance. It is not clear whether Kahlon will be responsible for the Israel Land Administration. Let's assume that he does his homework, and he is given the Israel Land Administration; the problem is that the Israel Land Administration does not set housing prices. If he introduces efficiency measures, he can influence the price of land, but that will not necessarily result in construction, and definitely not for affordable housing."
Feitelson says that the real problem is the lack of a government housing policy. For example, the government has not adopted criteria for affordable housing, so it is impossible to promote affordable housing projects. He warns that Kahlon will be toothless as chairman of the Israel Land Administration Council. "He cannot influence government policy because is not a minister. In addition, half of the council members are subject to the Jewish National Fund, and half are subject to the government, and he will be the mediator. He will depend on Netanyahu for everything that he wants to do, and Netanyahu's record is known to everyone - he has done nothing for affordable housing. As minister of communications, Kahlon carried weight; now he's Netanyahu's puppet."
How is it possible to lower housing prices from the current 130 gross monthly salaries to a more "normal" of 90 salaries or less, which prevailed before the surge in prices? Feitelson says that because Israel has no large land reserves, it must adopt a diversified and sophisticated housing policy which efficiently exploits the land resource. Instead of focusing on the massive marketing of land, which will not necessarily result in lower housing prices, but will unquestionably hurt future generations because land is a diminishing resource, Feitelson says that several housing solutions should be combined for the population as a whole.
"The poor should be returned to public housing. The wealthier need subsidized mortgages. Young people need an affordable housing plan, such as in Europe, where 10% of apartments are designated for young couples who meet certain criteria," he says. "We need greater diversity of communities in neighborhoods; not create neighborhoods for the poor and neighborhoods for the rich. Every neighborhood should have a proportion of households who receive aid. There should be a more sophisticated and multidimensional policy. We did it in the past. In the 1950s and 1960s, the country was a lot poorer than today, but we were still able to provide housing for everyone, despite the very rapid growth in population."
There's a theory that the government doesn’t want housing prices to drop sharply, because that could cause a mortgage crisis, as in the US. Do you agree with this theory?
"Obviously. It's true. It's impossible to control the housing market, but it's possible to game it. And that's dangerous. After all, what is a house? For most of the population, a house is the household's primary asset, and that is what parents bequeath to their children. If you crash housing prices, you impoverish Israel's households. That's how the crisis started in the US in 2007. You have to be very careful. That is why the slogan to lower housing prices is such dangerous thinking. You know where you begin, but you don’t know how it will end. If you start a crash in prices, it will mainly affect the periphery and not Tel Aviv. The poor will be impoverished. That is why you need policies targeting the relevant populations."
So the government is playing with fire with its current policy?
"The government is definitely playing with fire, but luckily the government is incompetent, so it has failed."
Published by Globes [online], Israel business news - www.globes-online.com - on January 21, 2013
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