Home prices look like 2009 revisited, but much has changed

New housing in Ashkelon Photo: Shutterstock Yuri Dondish
New housing in Ashkelon Photo: Shutterstock Yuri Dondish

The current steep rises in the cost of housing are entirely a vote of no confidence in government policy.

The housing price index showing prices rising at a monthly rate of 2.1%, represents a peak not seen in Israel since 2011. And what happened in 2009-2010 is what is happening now: an index that is entirely a vote of no confidence in the government and its housing policy.

In 2021 as a whole, prices rose by 13%, which is also something not seen since 2010, But apart from a similar vote of no confidence, the Israeli housing market of today does not have a great deal in common with what was happening here 11-12 years ago.

On the contrary, to refresh the memory, at that distant time leading up to eh social protest of 2011, there were no sales of homes at subsidized prices to young couples, and no restriction on investment buyers. The market was allowed to operate fairly freely. The fact that we have reached a similar rate of price rises despite heavy government intervention makes today's rises much more significant than what we had then.

A few comparative figures might shed a clearer light on how much the market has matured in the past decade or so. The number of monthly transactions is 50% higher than the average in the first decade of the century; the proportion of investment buyers is about two thirds lower than it was 11-12 years ago; annual building starts are almost 30% higher; the size of mortgages has jumped by more than 60%; and the number of young couples buying homes is a third higher. If it sounds surprising that we have moved so far from where we were then, and yet have stayed in the same place, the reason is that there is something that hasn't changed, and that is the government's attitude to the sector.

Supply increased, to no avail

The government's terminology has remained almost the same, and the cry "the supply of housing must be increased" continues to be heard, despite the fact that supply has been increasing for a long time, only it hasn't helped. The market of a decade ago rose steeply because the government did nothing to curb prices. The impression in today's market is that prices are rising because of government intervention, among other things.

Here is a small illustration: from a small gambling circle among real estate industry people a few hours before the index was published it emerged that they all believed that the last monthly index reading of 2021 would be more moderate than the two previous ones, which were about 1.5%. The reason: those two reading were affected by investment buyers storming the market to beat the hike in purchase tax before it came into force.

Of course they were all wrong. The investors were almost banished, their numbers falling from about a third of buyers to about 10%. The ones storming the market and pushing up prices were young couples and move-up buyers. This is a wonderful example of the simplistic approach of the government in the complex area of housing. Government officials have already realized that the problem of housing prices in Israel does not stem from a shortage of supply, but from demand patterns.

I have written more than once of the rush to buy new apartments, which began a few years ago and has been at a peak since the outbreak of the Covid-19 pandemic. This has led to an 18% rise in prices of new apartments (excluding apartments sold under the Buyer Price program), while the general housing index has risen by 13%. This means that prices of secondhand homes rose by something closer to 10%, a rather slower rise.

This shows how buyers are insisting on buying new homes, even though their prices are rising much faster than those of secondhand homes, and are linked to the Construction Inputs Index, which rose 6.5% last year.

As I have observed in the past, homebuyers' tastes have changed. People now require that their hones should also function as places for remote work and remote study, and at the same time provide a better and more spacious living experience than old homes can. This is clearly seen in the index of prices of new homes, which was marking time, and even falling, until the pandemic began, and since then has climbed steeply. During the whole period there was no shortage of new apartments, just growing demand.

The lack of faith on the part of the public in government housing policy does not stem only from twelve years of "housing supply" which have led to nothing, but also from the measures introduced by the current government, which look like a tired repetition of what Moshe Kahlon did as minister of finance, from higher taxation of investment buyers to the big lottery of Buyer Price homes to be announced in the next few days.

If the current government wants to adopt the same measures as have failed in the past, why should the public have any faith in it?

Published by Globes, Israel business news - en.globes.co.il - on March 16, 2022.

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

New housing in Ashkelon Photo: Shutterstock Yuri Dondish
New housing in Ashkelon Photo: Shutterstock Yuri Dondish
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