Kahlon's multi-home tax failure

Dror Marmor

Limiting the tax to NIS 1,500 a month benefits owners of luxury housing in Tel Aviv and discriminates against the periphery.

Home ownership is the biggest factor in inequality in Israel. The average wealth of home-owning households is much higher than those of households that do not own a home. The average monthly income of homeowners is nearly NIS 20,000, compared with NIS 8,700 for those living in rental accommodations. The average financial assets of homeowners are over NIS 700,000, compared with NIS 190,000 for renters.

Although it is never pleasant for the government to take money away from its citizens, it must therefore be admitted that there is social and economic logic in levying a tax on real estate (the more uncompromising will say this should also include ownership of a first and second housing unit). If they withhold tax from the monthly salary for which we work so hard, why should they not charge a tax on the real estate that has increased its value over the years without any effort whatsoever? Once we have agreed that the tax is "just," there is no ignoring the gap between this just principle and the actual distorted situation.

In order to be just, the Ministry of Finance shelved its original intention of levying a fixed fee for each housing unit (NIS 1,000 per month, or a fee based on the location of the housing unit), and decided that a variable tax would be charged amounting to 1% of the value of each housing unit. The calculation is based on a complicated formula devised by the Ministry of Finance that includes three parameters: the area of the housing unit as listed in the municipal property tax bill and coefficients assigning weights to the outlying areas and the socioeconomic state of the area in which the housing unit is located.

Since every home differs from others in dozens of parameters (area and location, floor, view, age of the building, etc.), it is already clear that as soon as the application that will make it possible to feed in the particulars is published, distortions will emerge in the calculation of the value of homes. The average calculation will be unjust for cheap and simple apartments, for example. In order to avoid a run on the courthouses, the bill states that calculation will be final and cannot be appealed. This will not prevent, however, the media and frustrated homeowners from parading the defects of the new formula.

To make a bad situation worse, the tax has been limited to NIS 1,500 per month (a maximum value of NIS 1.8 million per housing unit). This puts most housing units in the greater Tel Aviv region in the same category with the same ceiling, even though the tax rate will be much lower than 1% of the value of the home (in Tel Aviv, for example, the average value of a four-room apartment today is more than NIS 3 million, and its owner will pay only 0.5% tax).

In other words, what began as an effort to be just is winding up being of relative benefit to the rich, while abusing owners of housing units in the outlying areas. The exception made for housing units with an aggregate value of NIS 1.15 million (and a reduced tax on housing units with an aggregate value of NIS 1.4 million) gives the impression that someone has been up to last-minute tricks, because the only people still buying run-down and cheap homes for NIS 500,000 in recent years in places like Arad and Hatzor (Galilee) and the like usually belong to a specific sector (to which Knesset Finance Committee chairman MK Moshe Gafni (United Torah Judaism) is devoted).

No less importantly, a tax on a third housing unit does not actually add a single housing unit to the market. All it will do is transfer several thousand apartments from the rental market to the ownership market. In the bottom line, 18 months after being selected as Minister of Finance, Moshe Kahlon cannot seem to crack the most important nut of the housing crisis - increasing the supply.

The other rabbit he has pulled out of his hat, the buyer fixed price tenders, ensures that the vast majority of the new construction will be designated for non-homeowners. Due to the complexity of the tenders and the lack of desire on the part of most local authorities to approve construction of cheap housing in their cities, however, they are only further reducing the actual number of apartments being built. Only last week, the Central Bureau of Statistics announced that construction began on 38,675 housing units in the first nine months of 2016, 1,500 fewer than in the first nine months of the preceding year.

Published by Globes [online], Israel business news - www.globes-online.com - on December 18, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

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