As housing demand slows, so does supply

Dror Marmor

Building starts in 2017 will be far less than Israel needs, despite the government's promises.

It was completely predictable, of course. When Minister of Construction and Housing Yoav Galant says, "The contractors will have to stop eating steak," and Minister of Finance Moshe Kahlon says, "Contractors who don't take part in the buyer fixed plan will cease to exist," the contractors listen.

They are not the only ones. A contractor wanting to erect a crane tomorrow and start building a residential building for some reason, despite the great uncertainty and steep drop in sales, will have trouble finding a bank to share the adventure with him (even if he has to go from project to project in order stay in business). As if that were not enough, the local authorities are also in no hurry to fall in step with Kahlon's dreams of flooding the cities with as many new homes as possible when the municipal property tax that the tenants will pay does not even come close to covering the cost per resident.

Month after month, the Ministry of Finance has been celebrating the stagnation in the sector. Demand for housing is indeed on the wane. People purchasing their first homes are waiting for the buyer fixed price plan. People who want to improve their housing are either unable to sell or simply waiting for the broad effect of the stalled market to take hold, while investors have already been taking it on the chin from all directions. At the same time, however, quarter after quarter, it turns out that supply is also grinding to a halt in the same way. The fence is wide enough for both buyers and contractors to sit on.

Kahlon is aware of the problem, of course. From his first day in the Ministry of Finance, he has been talking about an increase in supply – first through short-term solutions (taking offices out of apartments, investors selling apartments, splitting up apartments in an expedited procedure), then by increasing building starts ("And if the contractors don't build, we'll bring foreign companies to build here"). Two and a half years after the government was formed, the numbers speak for themselves.

How inadequate is the figure of 10,029 building starts in the second quarter (even if the figures are upwardly revised retroactively by 10-20%)? According to the work plan presented by the Ministry of Finance for 2016 (they then presented the same figures for 2017), housing starts should be taking place at an annual pace of 60,000 on the way to an annual pace of 70,000. The target is not over-ambitious or unrealistic in a country with more than 50,000 weddings, 13,000 divorces, and tens of thousands of new immigrants a year. Instead, 2016 ended with 53,660 housing starts, and the figures for the first half of 2017 show that we have fallen to a pace of only 46,000 housing starts a year.

If we delve further into the figures, we find that the distress is even greater. In an annualized calculation, cities like Petah Tikva, Ramat Gan, and Netanya have been knocked out of the top five (Petah Tikva is in 11th place with 1,039 new homes, compared with 1,765 in July 2015-June 2016) and replaced by cities such as Ashkelon (2,073 new homes, compared with 1,243 in the preceding year) and Kiryat Motzkin (1,727 homes, compared with a mere 159 in the preceding year).

We are also obviously completely in favor of the outlying areas, but it is time to stop ignoring the fact that most Israelis still want to live in the center of the country (to the dismay of Prime Minister Benjamin Netanyahu, a nearby railway station is not the only criterion in selecting a place to live). Even in 2017, a home in Kiryat Motzkin is in no way a substitute for a home in Petah Tikva or Rosh HaAyin (781 housing starts, compared with 1,523 in the preceding year).

Apropos Netanyahu, although the fingers are being pointed at Kahlon, who two years ago took charge of all the real estate tools and promised to solve the housing crisis, it is sometimes necessary to get back to the prime minister himself. For a long time, Netanyahu blamed the Olmert government, which decided in August 2008 against planning in the center of the country. Netanyahu reversed this decision, which he said had sent housing prices soaring all over the country, in the summer of 2010, while promising "to flood the high-demand areas with homes." More than seven years have passed since then.

Published by Globes [online], Israel Business News - www.globes-online.com - on September 13, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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