So we are told that there is a huge shortage of apartments, is it really so?
As far as I know, people still don't live on the streets, nor do three families huddle together in an apartment (as was the case in the first years of the state). The percentage of households that do not own an apartment decreased from 29.6% in 2008 to 27.9% in 2014. (Data from the CBS)
Even if aggressive land marketing is carried out and construction barriers are removed, no one will force contractors to build beyond the supply level that will maintain housing prices in Israel. The contractors are the last in the chain who will volunteer to lower housing prices.
But does a drop in housing prices depend at all on the contractors and their rate of construction?
There is no doubt that this is one element that can have an impact and even a central element, but it is certainly not the only element and the state has the ability to act in many other ways that are faster and more readily available that can lower housing prices in Israel.
In the last six years there have been two attempts to lower housing prices, the first attempt was in 2011 (the social protest) and the second attempt was in 2014 (0 VAT), when the public stood on the fence to lower the cost of living (the main thing being the high housing prices), the contractors simply Slow down the pace of construction and avoid creating a supply that will lower apartment prices (see graph below which indicates the shift of the curve in 2011).
These two attempts only prove to us that salvation will not come from the contractors/entrepreneurs who act not out of necessity but out of profit.
Despite the endless criticism of the government, it is making many efforts to increase the rate of construction, but even this step is prone to failure in the face of the huge demands. It is difficult for the Israeli government to deal with the public's atmosphere of panic and disbelief that apartment prices will ever stop.
The "apartment shortage" saga is just a "slogan" that has no real hold on reality and in relation to this slogan it is important to note a number of factors that the public has forgotten:
A. Ghost apartments - Lots of apartments of investors or foreign residents that are not inhabited. An inspection by the Ministry of Finance shows that in the four largest cities - Tel Aviv, Jerusalem, Haifa and Netanya - there is a concentration of over 25% of apartments that are unoccupied. It is important to note that in Jerusalem there are even a number of neighborhoods that meet the criteria of "ghost apartments".
on. Huge supply of apartments for rent - Today there is a surplus of apartments for rent on the market. As a real estate consultant who specializes in the Carmel area, I can testify that many apartments in demand areas "sit" on the rental shelf sometimes for many months and the rental prices show signs of decreasing (except in the Tel Aviv state where the demand is rigid). The absurdity is that in the rental market, apartments in considered areas do not generate significantly higher rents than apartments in medium-sized areas and even medium-minus ones.
4 rooms in the Carmelia neighborhood which is having difficulty getting an amount of 4,000 NIS not far from a 4 room apartment in the upper Hadar neighborhoods and even Neve Shanan which is rented for 3,000 NIS to 3,500 NIS and the market price is much cheaper.
third. Apartments that became offices - Mainly in the central area, but not only, there are many residential apartments that have been converted into offices/studios of various kinds, which create a situation where there is a shortage of residential apartments, for example Moriah Avenue in Haifa where the phenomenon is particularly noticeable.
Another step that the government can take in order to curb the rise in housing prices is to raise interest rates. Without going into an in-depth economic analysis, as soon as the Bank of Israel raises the interest rate, it will harm a number of main factors:
A. Investors - The money will be more "expensive" for them and they will not rush to buy apartments and will consider investments in other channels such as the stock market or even a solid investment in PKM.
on. young couples - They will not be able to purchase an apartment because the mortgage will be very high, so they will continue to live in rent and will naturally cause the contractors to have difficulty selling apartments and lower the price.
It should be remembered that in addition to the risks listed above, the increase in interest rates is expected to contribute significantly to curbing housing prices and even lowering them.
After actions of the above type, the interest rate in Israel will reach a level that matches the current market situation and an alternative will be created for the investors' money that flows into the housing market. Under the existing circumstances, it is not certain that the risk of this shock is higher than the risk developed in recent years by the rate of increase in housing prices in Israel.
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A couple who cannot afford to buy an apartment in the area where they want to live and are forced to live in a rented place, can buy an apartment in another place where the apartments are cheap, with a little equity and a mortgage under eligibility conditions. That way at least he will enjoy passive income, as well as "savings that accrued to him from the return of the principal and also an increase in the value of the property.