Israel’s Housing Prices Jumping Through the Roof

The Media Line Staff

Tel Aviv, Israel (TML) – Housing prices in Israel are the fastest increasing in the world, says one industry watchdog.

The cost of real estate has risen by 30 percent since September 2008 according to Bank of Israel Governor Stanley Fisher.

Young couples and everyday Israelis are finding it harder to break into the housing market, many choosing to relocate to Jewish communities east of the Green Line, where costs are lower.

The Israeli banking system came out of the global financial crisis relatively unscathed, Fisher said at a July press conference. He added that the housing price increase in Israel is common to most countries in the world in similar economic situations.

“This housing problem of rising prices is happening in almost every country whose financial system stayed intact during the crisis. Every country reduced interest rates. If the banks were still operating normally, then lower interest rates led to higher demand for durables, of which housing is the most durable of the durables. Housing prices have gone up in Canada, they’ve gone up in Australia, they’ve gone up in Hong Kong.”

However, according to Global Property Guide, a trade magazine that monitors housing markets, housing prices in Israel have risen faster than any other in the world, leading some to question whether the market is in the midst of a bubble.

But Fisher refuted this claim.

“There is not yet a bubble in the housing sector. Prices are not much above where they were a decade ago, but they’ve risen over 20 percent in the last year and if they keep rising at this rate, we will have a bubble.”

The problem, according to Fisher, is that supply hasn’t matched demand. Interest rates have been at low levels, increasing demand for houses, but there simply aren’t enough homes on the market to match that demand. The ideal solution, Fisher said, would be to build more houses. But he doesn’t foresee this type of response anytime soon.

“We do not see big increases in the supply of housing at the moment. The alternative is to work on the demand side.” Thus, the Bank of Israel has raised interest rates several times in the past months, so that it now sits at two percent.

The Yesha council, which represents all of Jewish community councils located on land captured by Israel in the 1967 war, released statistics last week showing that in some of those communities, population growth was way above the national average, and well above what would be expected as a result of natural growth. Both the Efrat and Binyamin Regional Councils reported growth of over 8 percent.

This is despite at 10-month construction moratorium imposed by the Israeli government between November 2009 and September 2010.

Naftali Bennett, Director General of the Yesha Council, told the Media Line that many of the people who have moved to communities east of the 1967 Green Line have done so not for ideological, but for economic reasons. “People think it’s about ideology, but it’s simple supply and demand.”

“Movement to Judea and Samaria is the result of price rises in the center. Prices in Tel Aviv are at an all time peak, and the only place for natural growth in Israel is Judea and Samaria,” Bennett said.

Bennett added that, along with recent housing price increases, and because of the proximity of many of the communities east of the 1967 Green Line to the urban centers of Tel Aviv and Jerusalem, many young couples have found moving to these communities an advantageous option.

“Young couples find it very convenient. It’s one-quarter the cost and only 20 minutes from Tel Aviv. Why wouldn’t you do it?” Bennett said.

In June, the average price of purchasing a three-bedroom apartment in Tel Aviv was 2.15 million NIS, or $560,000, compared to 1.73 million NIS the year before. In Jerusalem the average price for an apartment in June was 1.55 million NIS, or $403,000, up from 1.31 million NIS the year before, according to government statistics.

Shelly Levine, of the prominent Jerusalem real estate firm Tivuch Levine, also pointed to the burden that the housing price increase has had on young couples.

“What are young people to do? There’s no way for them to break into the market. It’s crazy.”

Levine sees it as a result of low supply.

“There’s nothing to sell. There aren’t any houses on the market,” she said.

“It’s very dangerous for the country for prices to be so high,” Levine added, alluding to the possible long-term consequences of ever increasing housing prices.

“It’s the first time in my 30 years in the business that it’s been totally out of control.”

What is needed, according to Levine, is more land to build on.

“The government must release land. They must put out tenders for young couples and everyday Israelis or the prices will keep going up.”

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