Jerusalem, Israel David Rosenberg and Benja – Israel’s housing shortage and the skyrocketing prices that it has created are unlikely to be solved by the government’s latest measures because the industry faces critical shortages of labor and bureaucratic obstacles to building, industry leaders said.
Prime Minister Binyamin Netanyahu and Housing and Construction Minister Ariel Atias Monday unveiled steps aimed at tackling rising home prices and making it easier for young couples to purchase their first apartment. But the measures will takes months to bear fruit and aren’t likely to significantly reduce the growing gap between supply and demand for housing.
“The planning approval process is very long. Then, there is the Israel Lands Administration (ILA) which controls 94 percent of the country’s land, and those responsible move very slowly,” said Yossi Gordon, managing director of the Association of Contractors and Builders. “It’s a governmental body that works at its own pace and doesn’t respond to government targets to speed up the process and increase supply.”
In an otherwise thriving economy, housing has become the chief cause of concern for Israeli policymakers. They have voiced concern that soaring prices will kindle inflation and risk, leading Israel into the kind of housing speculation that laid low the U.S. and some European countries. Indeed, Netanyahu took time off this week from urgent negotiations with Washington over a settlement freeze and peace talks to address the housing crisis.
For the last five or six years, housing demand has exceeded the supply, with about 40,000 families entering the market annually to compete for about 32,000 new units added to the country’s stock. The overhang of a home-construction surge a decade earlier kept supply and demand in balance, but the inventory has since evaporated and the supply hasn’t expanded to compensate.
“The toughest part is to get all the regulations and the permits. In Israel, you’re always trying to get more square meters, and land is so expensive,” Inbar Krasny, president of Y. Krasny Building Construction Co., told The Media Line. “If you are applying for a zoning change, it can take two years. These days, it can even take more than that.”
With the market so out of balance, prices of new and second-hand apartments went up by 19 percent in the 12 months to August, according to the Bank of Israel. Over the last two years, the cost of a home has surged 40 percent.
Israel isn’t seeing the kind of speculative wave that pushed America into a mortgage frenzy and left banks and the economy weighed down by massive debt and overvalued homes. Israeli banks are conservative lenders and demand for housing is real, but the Bank of Israel concedes that the record low interest rates that prevailed in 2009 did encourage speculative investors into the market. It has taken measures to discourage borrowing to buy homes.
The measures announced by Netanyahu this week call for a 15 percent rebate on the purchase of land in ILA tenders and a one-time reduction in the land improvement tax to 20 percent from 45 percent next year. Both measures are contingent on the contractor completing construction of at least 80 percent of apartments on the property within 30 months.
In addition, cities and other local authorities will be allowed to collect fees for public institutions and public areas needed for new neighborhoods directly from contractors.
“The root of the problem is a lack of supply in the housing market,” Netanyahu told reporters. “The purpose of the steps we propose today is to bring some relief for those young couples seeking to buy their first apartments in the near term.”
Krasny said he was encouraged by the plan to give municipalities more authority. But Gordon said the government’s measures don’t address the shortage of skilled labor, nor are they likely to circumvent most of the red tape. With the constraints on construction, most builders won’t be able to complete a project in the 30 months set by the new program, he said.
The country’s building industry employs about 150,000 Israelis, but there is a critical labor bottleneck in the trades specializing in constructing buildings’ superstructure, Gordon said. That work, which entails heavy physical labor and working outdoors year round, doesn’t attract Israelis and is left to increasingly small numbers of West Bank Palestinians and foreign guest workers, he said.
The number of legal foreign workers in the building industry today is about 6,200, down from a peak of 80,000 a decade or more ago.
Red tape is another barrier to more building. According to the World Bank’s 2010 Doing Business rankings, Israel placed 121st out of 183 countries in the time and trouble it takes to get a construction permit and placed 147th in the time it takes to register a property. Using the construction of a warehouse as its benchmark, Doing Business said it takes 235 days and 20 bureaucratic procedures to get a permit in Israel. By comparison, among developed countries, the time was 166 days and the number of procedures fewer than 16.
Krasny said contractors and property officials are moving more slowly and cautiously than ever in the wake of a police investigation into bribery and corruption in approvals for Jerusalem’s Holy Land building project.
Gordon rejects criticism that the industry is also hobbled by backward building technology. It is true that for small-residential construction, most contractors are using primitive methods, but for buildings of four floors or more, the industry is much more advanced. He estimated that 60 percent of all building in Israel meets that standard.
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