The Knesset Research Department yesterday published a report, which describes in detail the rise in housing prices in recent years, and analyzes its causes. The report, "The crisis in the housing market and ways to emerge from it", was prepared for the Knesset Finance Committee's discussion on the subject today.
"In recent years there has been a rapid rise in prices in the housing market nationwide," states the report. "As a consequence, in July 2010, the government decided to increase the supply of land for residences and to increase approvals for 60,000 housing units a year from 2011 through 2020 (compared with the average of 25,000 housing units a year in the preceding years), by the Israel Land Administration and the planning commissions. The government and the Bank of Israel also made a series of decisions on the issue of residential construction."
The report found that a new business cycle in the residential housing market began in May 2007, and that prices began to climb. The housing prices index rose by 52.7% in real terms between May 2007 and February 2013. Between August 2012 and February 2013, there was a renewed jump in housing prices by 7% in real terms. The average monthly increase in this period was 1.14%.
The report lists several factors which caused the sharp rise in housing prices. On the demand side, the report cites the increase in population, rising incomes, the mortgage interest rate, the public's purchasing power (the unemployment rate and wealth indices), the availability of bank credit for homebuyers, the change in the interest rate, and yields on short and long-term bonds (the low yields in the capital market created an incentive to invest in the housing market).
The main factors on the supply side which contributed to the rise in housing prices included the marketing of land for residences, the number of building permits issued by local planning and building commissions, the Price Index of Input in Residential Building (labor, raw materials), planning procedures, and the availability of credit for contractors.
The report concludes, "The government's efforts to alleviate the rise in prices has not only failed, but in recent months the pace of the rise in prices has sharply accelerated. This means that the policy tools have not had the desired result, and it is possible that these tools should be used more forcefully, especially increasing the supply and shortening the time needed to obtain building permits and the construction time itself, and to restrain demand by investors in the housing market."
Published by Globes [online], Israel business news - www.globes-online.com - on April 29, 2013
© Copyright of Globes Publisher Itonut (1983) Ltd. 2013