Bank of Israel: There is shortfall of 40,000 homes

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Dr. Kobi Braude found that the shortfall is much lower than the 100,000 thomes that others have cited.

In an address at the “Conference on Housing Affordability” of Tel Aviv University’s Alrov Institute, the Bank of Israel, UCLA, Board of Governors of the US Federal Reserve, and the American Enterprise Institute, Advisor to the Director of the Research Department at the Bank of Israel Dr. Kobi Braude reported, "The assessment is that the accumulated shortage in homes relative to demographic needs in the Jewish sector is 30,00040,000 homes."

In his lecture, Braude presented several findings involving demography and the supply of housing in Israel showing that the shortage of housing in Israel, which various sources have estimated in recent years at 100,000 or more housing units, was much lower. Braude defined “demographic need” as the annual increase in the number of units required to supply the increase in housing needs stemming from an increase in the population, taking into account its composition and housing characteristics. He said this was not the same as the demand for housing, which is affected by other factors, such as the return on financial assets and housing prices.

In his address, Braude presented the calculation of housing needs for the Jewish sector, citing the assumptions made for this purpose about housing density coefficients, such as the number of adults per home for various population groups according to age and family status. He then estimated the overall need using two different models. According to the average of the results he obtained, the need in the Jewish sector in recent years has been 41,000 housing units per year.

According to Braude, a comparison of this need with the estimated number of building starts in the Jewish sector (building starts in Jewish communities as defined by the Central Bureau of Statistics, accounting for 87% of all building starts) shows that up until 2009, the number of building starts was substantially lower than the need. Since that time, the pace of building starts has picked up greatly, and is now close to the current need. Braude added that building completions naturally responded somewhat later than building starts.

With respect to the cumulative gap between the need for housing and and actual building starts, Braude stated that the ongoing slide in home prices through 2007 showed that there was surplus of homes until that point, and the stabilizing of prices at that time indicated the exhaustion of the then-existing surplus, meaning that only post-2008 gaps need to be closed. The resulting conclusion is that the accumulated shortage of homes in the Jewish sector in comparison with demographic needs is 30,00040,000. This shortage is clearly not the only cause in the current demand for housing and its prices today; other factors include the yield on alternative assets.

At the same time, Braude noted that the population growth rate and demographic processes made it necessary to maintain the high level of building starts that prevailed over the past three years, or to increase it slightly, in order to close the cumulative gap. He explained that in order to maintain a high pace of building in the long term, it would be necessary to make urban construction denser, and to build appropriate infrastructure, such as mass transit systems. He also mentioned that a change in social characteristics, reflected in a higher proportion of unmarried people, as well as the aging of the population, made it necessary to take into account the size of homes built, instead of merely focusing on the number of homes required.

Published by Globes [online], Israel business news - www.globes-online.com - on July 12, 2016

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

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