"I see no change in the trend, no change in the sector, and I speak in the name of the contractors. Our sector needs stability and certainty, and we don't have it now," Israel Builders Association president Roni Brik said at today's "Globes" 2017 annual Real Estate and Infrastructure Conference. "At the Builders Association, we have been living with the state of the construction industry for many years. We have certainly have thousands of years in aggregate experience in this industry. It may not be the wisdom of the crowd, but it is the wisdom of the contractors who make the market and face its difficulties and barriers every day in every place. It represents what is actually happening, not what we'd like to happen."
Brik was responding to figures showing a slowdown in home purchases and the Central Bureau of Statistics report of a dip in prices in late 2016. The Ministry of Finance's measures increasing taxes on investors are leading to a fall in purchases and an increase in sales by this market segment, but it is still premature to say that the market trend has changed.
"Flood the market with land"
Brik does not believe that the market trend has changed. "I understand that some people have an interest in painting a rosy picture, but there's no getting around it. We experience the market and what is actually happening every day. The direction of this government is better than the preceding one, but the pace of solutions falls short of the sector's difficult problems."
Commenting on the Central Bureau of Statistics figures, Brik says, "What they forgot to tell us was that this index includes buyer fixed price deals. In other words, homes sold at 30% below their real market value. You don't have to be an economist to realize that that discounted homes for a closed market of young couples and those who do not own homes, which were included in the Central Bureau of Statistics figures, will lower the monthly average. It's a distortion of reality. The sale of several hundred homes in the buyer fixed price framework in December were enough to portray things as if the housing price index went down 1%, even if the prices of all the other deals in the market 1% or more higher. They should also publish an index that excludes buyer fixed price deals, which would be relevant and real for most of the interested people in the market."
Commenting on a similar objection by the Real Estate Appraisers Association, Central Bureau of Statistics chief statistician Prof. Danny Pfeffermann explained that even without including sales of buyer fixed price homes, the housing index still shows a 1% decrease. At the same time, Pfeffermann admitted that it was premature to say whether the trend had changed, and that like any other initial figure published by the Central Bureau of Statistics, the recent figure for December showing a drop in prices was also subject to future upward or downward revision.
Later in the conference, Brik explained the factors supporting a continuation of the upward trend in prices. "First of all, let's examine the government's main program for lowing housing prices - the buyer fixed price program. Those of us in touch with the actual situation are encountering mainly despair on the part of young couples starting out, many of whom lack the equity threshold required for getting a mortgage, and we are therefore seeing many cancelations. This isn't just one or two couples; it's a real trend. Everyone knows that if you really want to lower housing prices, you have to build more housing units, but if you want to build a lot more housing units, you have to release a lot more land and flood the market with land. The prices of land in the secondary market for those seeking better housing have shot up far beyond any economic logic, even in areas where buyer fixed price projects are taking place. As long as this situation persists, land prices will continue skyrocketing."
Brik also commented on the politics affecting the sector, saying, "I may not be much of a political commentator, but I have learned one thing: a hint of early elections makes housing prices rise. Far be it from me to offer political advice to the government, but if they are really concerned about housing prices, let them hold off on elections until the government reaches the end of its term."
"Bureaucracy is killing companies"
Concerning the problem of work accidents in the construction industry, Brik had this to say: "We are committed to the problem of accidents in the sector, but we also need state help. We'll do anything to reduce work accidents, but we're not the state. More enforcement on building sites is needed. A worker going to work in the morning has to know that he'll get home in one piece, and we're committed to him and his family. Anyone who breaks the safety rules should be severely punished: both contractors and workers. Here, of all places, where human life is as stake, regulation is lagging behind. Resources are lacking; there is no personnel. There are 17 inspectors without vehicles earning NIS 6,000 a month responsible for 13,000 building sites."
Brik also criticized the Payment Law. "Even when we already have land to build on, there's no one to pay us for what we have built. Our expenses are subject to the laws for the private market, but our revenue is subject to the public bureaucracy laws," he said. "We pay the expenses here and now, but the revenue comes in periodic payments - whenever the local council head has money available. So the government decided, with justice, to put an end to this disgrace, and to pass a law to change the poor payment ethics in the public sector, but the contractors were excluded from the law. The construction sector is the only one in the Israeli economy subject to aggressive competition, the only one without artificial entry barriers, the only one in which good large companies take a large monetary risk on themselves, and the only one that the state has the gall to make it pay for building public institutions, railways, bridges, and infrastructure. Payment ethics is just one element of the bureaucracy that is killing contractor companies one after another. When I say killing, I mean it. Contractor companies get into cash flow difficulties not because they don't know how to build, and not because they don't finish projects on time, but because they aren't able to cope with the army of bureaucrats facing them, an army that has unlimited authority and very limited responsibility. It slows the pace of building, burdens us with unnecessary expenses, and dramatically increases the risk in the sector. That's not how to lower housing prices - that's how you destroy the construction industry."