New homes only worthwhile in high demand areas

Israeli housing Photo: Tamar Matsafi

Increasing housing supply in low demand locations won't cut prices when there is a shortage of housing in Tel Aviv and Jerusalem.

The Israel Builders Association has begun a campaign in recent days, including a lecture by Prof. Shmuel Hauser, arguing that if the supply of housing increases, prices will fall.

This campaign relies on the obsessive counting of housing units begun at the beginning of the decade, when housing prices began to rise. This obsession caused damage, a small part of which began to surface recently, but most of which will appear in the coming decades.

The government enthusiastically jumped on the housing shortage bandwagon in order to demonstrate that it was doing something to lower housing prices. Economists also endorsed this thesis, because it was simple and fitted in with simplistic economic models.

In recent years, the overall supply of housing increased, especially in 2013-2015, through accelerated construction, but prices did not fall and the public was in no hurry to buy the new apartments. Spacious apartments built to a high standard in new neighborhoods stayed on the shelf, and not only because the prices were still high. Why? Because the apartments were not built where they were needed. The supply problem in Israel is not universal; it is in special places and specific sectors.

There is no lack of housing in the Krayot region north of Haifa, or in Harish (actually, the secular population did not need Harish), or in Dimona, Beer Sheva, or Akko. There is a shortage of housing in Tel Aviv and Jerusalem, in haredi (Jewish ultra-Orthodox) communities, and in Arab communities. These are exactly the places where not enough housing was built.

Most of the activity aimed at increasing the supply of housing created a phony supply of housing of no relevance to the country, to no one's benefit in the near future. On the other hand, demand pressure in the places that are relevant will continue. We will pay the price of the unneeded supply and the missing supply in the next housing crisis.

Published by Globes, Israel business news - en.globes.co.il - on April 23, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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Israeli housing Photo: Tamar Matsafi
Israeli housing Photo: Tamar Matsafi
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