Minister of Finance Avigdor Liberman, Minister of Construction and Housing Ze'ev Elkin, and Minister of the Interior Ayelet Shaked, held a press conference yesterday to present the "Government Housing Plan". The plan is designed to halt the rise in home prices. No-one expects prices actually to fall.
Alongside the plans already presented in recent weeks such as the target price plan and the urban renewal plan, three significant steps were presented: raising purchase tax on purchases of investment properties to 8%; a ban on permits for exceptional use for homes in central Israel; and measures to prevent short-term rentals (such as through Airbnb) in central Israel.
Liberman expects the bill to raise purchase tax to be passed by the Knesset within ten days. The aim is to act as quickly as possible and not upset the market. Legislation enacting the rest of the measures will take months, in Shaked's view. The entire plan is dependent on the state budget being passed this week, but in reply to a question from "Globes" on that matter, Liberman replied categorically, "It will pass."
Taxation
On purchase tax, the plan is identical to the policy of the last minister of finance but one, Moshe Kahlon, which was changed by his successor, Israel Katz. Instead of purchase tax starting at 5% of the purchase price of a home, an investment buyer will pay 8%. This measure is expected to be passed through expedited legislation within two weeks, to prevent a rush of investment purchases to beat the tax hike, which would be liable to raise prices.
On capital gains tax, Shaked said that, in order to encourage construction on privately owned land, the marginal rate of capital gains tax on the land would be reduced from 47% to 25% for four years. After four years, there will be a gradual rise to 47%.
"Globes" analysis: A repeat run of the measure introduced by Moshe Kahlon six years ago, only under less favorable conditions for the government of more rapidly rising prices. Investors will buy up more properties in the very near future, and then there will be a dramatic decline in investment purchases once the tax is imposed. The debate is over the extent to which this measure is right for the market: whether to let investors buy homes as much as they want, or to bar them, and thus perhaps make more apartments available for young couples, but also to reduce the supply of rental homes. The government's stance is determined - to bar them - but not well argued.
Bottom line: Unclear how much this will help.
Eliminating Airbnb
In the context of boosting supply, a central plank of the plan concerns preventing the use of residential properties as hotel accommodation (such as through Airbnb) in central Israel. In other words, a complete ban on residential property owners letting their properties as vacation homes, with the aim of increasing the stock of homes on the market. The ministers estimated that this measure would lead to the freeing up of some 13,000 apartments in high-demand areas.
"Globes" analysis: Not long ago there was talk of raising taxation on owners of short-term rental properties, and now they want to outlaw such rentals entirely. There are many justifications for such a measure, from the point of view of permitted use of residential properties, and unfair competition with hotels. But will it free up apartments for the Israeli home market? There's no proof that it will.
Bottom line: Unlikely to help the market.
Expediting planning
Elkin presented goals for the next four years, up to 2025: marketing state-owned land for construction of 300,000 housing units, 75,000 a year. Another target set is 500,000 housing units planned in the next four years, and 280,000 building starts. "We have decided on investment to accelerate the housing market: NIS 8 billion in infrastructure supporting construction, NIS 5.5 billion in school classrooms; and NIS 5.4 billion in purchase grants in the periphery. This is in addition to NIS 2.5 billion allocated to the Arab sector, and NIS 640 million in expediting building permits," Elkin said.
Among the government's is also the reduction from 80% to 66% of the proportion of apartment owners in a residential building required for consent to an evacuate and build scheme, and NIS 600 million budgeted to promote such schemes among local authority heads, and NIS 55 million for urban renewal in the Arab sector.
Another measure announced is a pilot program for urban renewal in five local authorities: Ashkelon, Rehovot, Jerusalem, Givat Shmuel, and Lod, in which developers can receive supplementary land.
Shaked presented the measures that she is promoting in the Ministry of the Interior: her alternative to the Tama (outline urban building plan) 38 program, which provides incentives for earthquake-proofing existing buildings through allowing extra apartments to be built on them; extension of the activity of the National Committee for Planning and Building Preferred Housing Sites, which is meant to speed up planning procedures; and conversion of offices to residences, including in buildings that have not yet been constructed, in which 30% of the psace can be converted to residences.
"Globes" analysis: A lot of numbers on paper, most of which have not found expression in the field, is how the measures introduced by governments over the past ten years can be summed up. Elkin's price target plan is nowhere near the scale of Kahlon's buyer price program. Urban renewal in the periphery is one of the fundamental problems of Israel's housing industry, since it is not economically worthwhile, and urban renewal is at present concentrated in high-demand areas. To turn the vision into reality, projects in the periphery have to become profitable.
Bottom line: The budget allocated will perhaps suffice for a few projects, but will not bring real change to the periphery.
Splitting up houses
An additional relaxation includes a plan for the more efficient use of houses and garden, which would allow the homeowners to split up their home into two and to receive a rate reduction of 34% on the betterment levy to encourage homeowners to split their homes.
"Globes" analysis: This is an improved version of a bill proposed by former Minister of Economy and Industry Eli Cohen, who spoke about owners of houses splitting their property without the need of a building permit and without having to pay a betterment levy. In this way the house owners could build a house for renting and keep their own homes. Five years since Cohen proposed this, it is difficult to see any achievement here and probably the measure won't be supported by the local authorities and certainly not the neighbors.
Bottom line Insignificant measure.
Prohibiting exceptions to residential use
As part of the plan the prohibition of non-residential use for apartments in Central Israel has been declared. Some years will need to go by before this measure is felt in the market because it is only every few years that homeowners request such exceptions to residential use. Kindergartens will be exempted from this reform as well as businesses in ground floor apartments.
"Globes" analysis: Exceptions of use are the step brothers of building relaxations. These can come in the form of converting residential apartments into clinics or kindergartens or industrial areas into commercial centers. Too many times this procedure is exploited for exceptions in use in order to bypass planning tracks. Exceptions in use are implemented for two main reasons - the first is in order to make an exception and the second is for a real need for a service or the exception in use offered.
Bottom line: The right move but it won't have such a substantial impact on the market.
Shortening licensing procedures
Within the framework of shortening licensing procedures, Minister of Interior Ayelet Shaked said that an independent licensing mechanism will be promoted and expanded. With the consent of the local authorities that want to do so for buildings of nine floors or more, while cancelling quantitative relaxations for developers. Shaked said, "We have reached the conclusion that relaxations only spread out the planning and licensing procedures. The head of the committee will receive an instruction to give the maximum possible building rights ahead of time, and this will save a lot of time."
"Globes" analysis: There are three problems with this track: the local authorities and city engineers will oppose it; continued ignoring of the personnel shortage on local committees, which are responsible for issuing building permits; the idea has been tried in the past and was not successful.
Regarding canceling the relaxations - this measure will perhaps make planning procedures more orderly and speed them up because some of the delays on approving plans stem from requests for relaxations by developers. On the other hand, the relaxations have already become part of the DNA of the planning world and the question is whether it is possible to be weaned from this.
Bottom line: A measure that will perhaps have a long-term effect.
Published by Globes, Israel business news - en.globes.co.il - on November 1, 2021.
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