Home prices: Kahlon celebrated too soon

Dror Marmor

The minister of finance can no longer cite falling housing price figures for the past year.

The Central Bureau of Statistics reported in March that the housing prices index fell 1% in January 2018. The index for prices of new homes, first launched that month in the realization that the negative sentiment will begin with contractors and developers anxious to sell at any price, dropped 2.1%, with housing prices falling in all six regions and the steepest fall in price being 3.1% in Jerusalem.

The Ministry of Housing rolled out the champagne. The die was cast. The minister of finance and his associates celebrated four consecutive months of declining housing prices. They said that a historic turning point had been reached, forgetting that this sequence of events had already occurred too many times. They of course labeled anyone who doubted the figures a self-interested party grasping at young couples' money.


When the price decreases in the February and March indices were significantly less (0.5% and 0.1%, respectively), the Ministry of Finance had a flash of inspiration and started talking about the annual rate, not the monthly rate; the large decreases in January guaranteed that even unchanging monthly prices would still make it possible to present a drop in annual prices "for the first time in a decade." Last month, when the March dip was revised to a 0.1% increase and the six months of decreases became only three months, the Ministry of Finance said that the "annual pace of decreases had been doubled" from 0.1% to 0.2%.

Two days ago, however, it no longer worked. Another retroactive revision put the annual rate of decrease at 0.1%, which is not a cause for celebration. Actually, since Minister of Finance Kahlon took office over three years ago, housing prices have climbed 13%. Price of new homes, which promised to display a negative trend, are already completing two months of increases: 0.9% in May and 1.6% in April.

This, of course, did not stop the minister of finance from twittering, "The madness has been halted. The housing prices index has been negative at the annual level for the third straight month. The Buyer Fixed Price Plan is a proven success. We're going full steam ahead." What a pity that what has really been halted is the decline in prices. 0% in May, a 0.1% increase in April, and a 0.1% increase in March.


The economy, of course, gives a great deal of weight to the buyers' expectations and psychology. People who believe that tomorrow will be cheaper than today and the day after will be cheaper than tomorrow will grit their teeth and not buy today.

It appears that Kahlon is so enamored with economic psychology that he forgot that it has to be backed by a minimum of data and deeds: more housing units on the shelf, more housing starts, more mayors backing him up with building permits, not just smiles, more lotteries for subsidized housing units that will enable the general public and those miserable people who do not own their own homes to believe what they so much want to believe.

In point of fact, the Ministry of Finance reported that 17,150 Israelis, just 17,150 Israelis, registered for the big Buyer Fixed Price Plan lottery scheduled at the end of the month in which 4,268 apartments will be awarded at discounts of hundreds of thousands of shekels in desirable places such as Ramat Gan, Kiryat Ono, and so forth.

Last August, in the first big lottery, 41,856 households registered (for 15,000 apartments), almost all of the eligible people registered.

Today, when the Ministry of Construction and Housing has 126,089 eligible people registered who do not own their own homes and who paid for a certificate of eligibility, 48,197 of whom were informed that they were lottery winners (only a quarter of whom were also allowed to selecting their apartment), only 17,150 Israelis decided to register for the next lottery. Where are the other 61,000 holders of certificates of eligibility? Why didn't people who do not own homes register for a lottery for a cheap apartment in Ramat Gan or Dimona?

Some of them have almost certainly simply given up. They know that a cheap apartment in Ramat Gan (NIS 16,000 per square meter) will require them to put up at least NIS 400,000 in equity and a cheap apartment in Dimona (NIS 6,400 per square meter plus a NIS 60,000 grant) will not necessarily be cheaper than the ordinary market. Furthermore, they have already realized that everyone is buying merely in order to rent out what they have bought.


Others of those who do not own homes and possess certificates of eligibility have simply gone to buy an apartment on the free market. When a Buyer Fixed Price Plan apartment in the central region costs NIS 1.5-2 million and there is a lack of clarity about the chances of winning, whether people will be able to buy the subsidized apartment (depending on what will be left when their turn comes), and what the area and final price of the apartment will be, many people are realizing that it may be better to give up on the subsidy and look for an old modest apartment in one of the cities. There they can dream about the potential of National Outline Plan 38, instead of the Kahlon subsidy.

The Ministry of Finance last week published housing market figures for May, the month in which it was learned two days ago that prices were unchanged and prices of new homes rose by 0.9%. According to the Ministry of Finance's figures, 4,500 of those not owning a home bought new apartments in May, including only 660 under Kahlon's Buyer Fixed Price Plan.

3,800 Israelis gave up on the subsidy, which cost the taxpayer nearly NIS 10 billion (loss of revenue from land, taxes, etc.). 3,800 non-homeowners did not believe the minister of finance's declarations that "The Buyer Fixed Price Plan is a proven success" and that it will certainly be cheaper in the market tomorrow. It will be hard for Kahlon to call them self-interested parties.

Published by Globes [online], Israel business news - www.globes-online.com - on July 17, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

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