A committee headed by the Ministry of Housing and Construction is considering legislation requiring parties selling or leasing housing to quote their prices in shekels. Also being considered is requiring landlords to list rents in shekels in their leases in cases where the ministry pays part of the rent.
The Ministry of Housing and Construction asserts that in the current situation, a 5% rise in the shekel-dollar exchange rate causes a 1% rise in the Consumer Price Index (CPI), because the housing item accounts for 20% of the CPI. An examination by the Ministry of Housing and Construction Department of Information and Economic Analysis found that over the past three years, the CPI rose more than the shekel-dollar exchange rate; the CPI rose by 336% during 1987-2004, while the shekel-dollar exchange rate rose by 182%.
The ministry concludes that from a macroeconomic standpoint, it is preferable to weaken the correlation between the exchange rate and the CPI.
The ministry stresses that dollar linkage in the housing market began during the period of hyper-inflation in the mid-1980s. Its continuation now is due to inertia and the difficulty for lessors and renters in changing the practice. The ministry found that large fluctuations in shekel housing prices harmed both lessors and renters, because most of their income and expenses were denominated in shekels.
Ministry of Housing and Construction director general Shmuel Aboav said that quoting prices in dollars was a case of market failure, and should be uprooted. As soon as rents are linked to the CPI, instead of to the dollar, changes in rents will be small, while changes in the shekel-dollar exchange rate can be large.
Published by Globes [online] - www.globes.co.il - on September 18, 2005