Bank of Israel blames housing price rises on supply

Bat Yam Photo: Shutterstock
Bat Yam Photo: Shutterstock

The Bank of Israel urged the government to make the supply structure more flexible and also slammed the uncertainty caused by repeated tax changes.

The Bank of Israel has dedicated a section in its annual report to analyzing why housing prices rose by 13% in 2021. The Bank of Israel writes, "In our assessment, the source of the problem in the housing market has been and still is supply and the government must act to make the supply structure more flexible."

The Bank of Israel also blames other factors such as the government's program for young couples eligible for discount price apartments and the increasing and decreasing of purchase tax for investors as well as high returns on the capital market and the rise in the building inputs index.

The Bank of Israel also makes a point of exonerating tech employees, whom many blame for the rise in housing prices because of the vast amount of money pouring into the sector. The Bank of Israel notes that except in Tel Aviv, their proportion of the total number of buyers fell in 2021, and the sharp price rises in Tel Aviv itself began before 2020, before the post-Covid boom in the tech sector.

The Bank of Israel also observes that housing price rises are a worldwide phenomenon. In the seven quarters from the start of 2020 until September 2021, housing prices in the OECD rose 12.9% in real terms, while only rising 9.9% in real terms in Israel.

The Bank of Israel also slams government policy on 'managing demand': "chopping and changing" over purchase tax for investors increased by Moshe Kahlon in 2017, cut by Yisrael Katz in 2020 and again increased by Avigdor Liberman last November; and halting the Mechir Lemishtaken plan and replacing it with a less attractive plan.

"Measures to manage demand introduce volatility and uncertainty to the housing market due to their short term effectiveness. Uncertainty damages planning supply, which reacts slowly anyway. Taxation in the housing market must be based on long term considerations that prevents regulatory discrimination between different types of assets and introducing frequent changes should be avoided."

Published by Globes, Israel business news - - on March 29, 2022.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.

Bat Yam Photo: Shutterstock
Bat Yam Photo: Shutterstock
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