Are you stuck in the real estate purchase loop? Every time you think you’ve saved up enough, you find that prices have jumped that much higher? Here’s why that frustrating cycle keeps repeating itself.
Here’s a little background into the reasons for the sharp rise in Israeli housing prices.
There are lots of factors involved, including the disappointing truth that local authorities have all but stopped issuing building permits, often based on the lack of infrastructure in many areas. In addition, the right to issue approval toward building and development is largely held tight in the hands of non-Israelis. And not to be forgotten, the prices of building materials have also risen significantly.
Add to that the demand for underground parking solutions (remember, here it’s often digging through rock!) in more and more multi-family buildings, plus extensive taxing on all aspects of real estate.
Then we have the rising costs of financing, growing bureaucratic demands and increased load of new-and-improved standards and enforcement that balloons from year to year. Once upon a time, mama”d safe rooms (in-unit bomb shelter) wasn’t part of a building budget. Now it is. Add to that more stringent guidelines concerning doors, windows and balconies… All these cost money and drive prices higher.
But more than anything, we believe that the main two factors that keep shooting housing prices higher and higher are the following:
- Land due to a shortage of space becomes more severe from year to year in Israel; we are a small country running out of space.
- The Israeli governmental tender process is limited to a group of seasoned entrepreneurs, disallowing other players in the market.
So let’s explain a little more.
The land shortage – why?
The State of Israel is tiny. Every year it marches higher up the ladder of the most densely populated countries in the world, where we currently sit at approximately one person per kilometer.
Our magnificent country has blessedly grown a lot over the years, thanks to miraculous birth rates, an increasing life expectancy and Jewish immigration. However the physical land area of Israel has not grown accordingly. (Unfortunately, it has even decreased significantly in recent decades.)
Considering that the majority of our citizens prefer to live no further south than Gedara and no further north than Hadera, the State of Israel is running full force into a critical land supply crisis. Unless we change directions, this will have a profound effect not only on the current generation, but on future generations in increasing severity.
Some lowland cities have already eliminated most – if not all – of their state-mandated green spaces in favor of expansion. This leads to a fundamental need for Urban Renewal projects in order to rehabilitate old buildings to be livable, and to provide a solution to the lack of supply compared to demand..
Land in Judea and Samaria: often inaccessible
In Judea and Samaria, there is also a land shortage in many Jewish settlements, in light of the fact that almost all these communities were established on state-owned lands. The state has annexed plots that have not been settled or cultivated in at least the past few hundred years. However, in light of population growth, State Lands have become depleted in some places, and given the pressures of preventing a “political push” for massive construction on the remaining state lands, a situation has arisen in which it is also necessary to find additional space for the benefit of the development and natural growth of towns located over the Green Line.
The problem is that the land is mainly in the hands of a small, select group of entrepreneurs. Call it an old boys’ club, if you will.
The Israeli History of Purchase Groups – How the Little Guy Got Squeezed Out
On the eve of Moshe Kahlon’s inauguration as Minister of Finance, in 2015, the rising power in the real estate sector was the power of Purchase Groups.
In fact, until that moment, the Purchasing Groups won about 50% of the official state tenders in favor of new construction.
At the time, only Purchasing Groups were able to lead participants to a property at a significantly discounted price compared to the prices of similar properties in the area.
Except, of course, giant entrepreneurs and veteran contractors have never taken this lightly. They have grown used to dominating the real estate sector, and Purchasing Groups bite into their control of the market, their profits and their ability to steer supply and demand.
These fat cats exerted forces and pressure on government officials to push Purchasing Groups completely out of the market, and politicians at the time, for their part, disguised their war on the Purchasing Groups as “concern for public peace”. The most prominent and memorable example of this was the “Inbal Or Affair“.
Conclusion: While consistently rising costs of housing in Israel are frustrating to the point of being alarming, the Purchasing Groups system can help alleviate (or at least lower) some of the costs involved. Building permits and plan approval will likely remain difficult to obtain, construction materials, financing costs and building standards can be better controlled (read that – LOWERED) when working together as a group. Taxation… well you know what they say about death and taxes.
