"Dealing with the housing crisis does not require miracles; it requires a wise policy based on research," Governor of the Bank of Israel Karnit Flug said today at a conference held by the Bank of Israel in Jerusalem entitled, "Issues in the Housing Market."
Flug stated, "Housing is one of the basic services, and an important matter in any economy. Buying a home is a person's most important economic transaction in his lifetime. The decisions and considerations are different for each person. Buying a home also usually involves taking a mortgage and making monthly mortgage payments. The Bank of Israel has an important role in the housing market, both in supervising banks and maintaining the banks' financial stability. The real estate market is very complicated, requiring a wise policy, and the Bank of Israel is also an economic consultant to the government. We consider various policy measures and make recommendations."
Flug added, "We recommended bringing foreign construction companies to Israel, which can improve productivity in the sector. At the same time, however, we opposed importing foreign workers. We recommended increasing the amount of land available for construction and increasing the planning inventory. We also recommended the need for urban renewal, together with addressing infrastructure. Policy decisions based on research have a better chance of affecting housing prices."
"Bank of Israel restrictions on financing for buying property have affected housing buyers"
"The first restriction imposed by the Bank of Israel on the proportion of financing for buying a home made households choose mortgages at a lower rate of financing, and also caused people to buy cheaper housing units more distant from the central region," Bank of Israel Research Department researcher Nitzan Tzur-Ilan said at the Bank of Israel conference. She was presenting a study on the effects of the Bank of Israel's credit restrictions on the housing market, with an emphasis on the restriction of the financing rate.
"In October 2010, the Bank of Israel required the banks to allocate more capital," Tzur-Ilan explained. "This restriction was relevant to loans of over NIS 800,000. I examined 27,000 transactions, and found that there were effects. The banks raised the interest rate for risky borrowers. The average interest rate rose for those borrowers. When you look at households of the same age with the same income, there is a significant difference in the interest rate. This meant thousands of shekels a year more for someone who took a mortgage at a financing rate of over 60%, and the households reacted. Households were able to choose whether to take a mortgage of more or less than 60%, in contrast to later restrictions, which dictated the rate of financing.
"Households also changed their selections by choosing cheaper properties. There was no change in the size of the home, but households began to buy properties more distant from the central region, and in neighborhoods with a lower socioeconomic rating. I also examined whether those choosing to buy in more remote places were buying in better neighborhoods with a higher socioeconomic status. The figures strongly indicate that they chose neighborhoods with a lower socioeconomic status."
Published by Globes [online], Israel business news - www.globes-online.com - on December 27, 2016
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