One of the first and most important tasks facing the next government will be to deflate the real estate price bubble. This is a mega-bubble that has only grown, and we are familiar with the consequences. Prime Minister Benjamin Netanyahu talked about this issue in the final days of the election campaign. He admitted it needed to be dealt with and promised to do so.
The correct way to dismantle a bomb is slowly and cautiously. So the goal should be to lower housing prices gradually to a reasonable level. A sharp decline could produce shock waves in the economy that would undermine the stability of the financial system and send the economy into a recession. We saw what happened in the U.S. in 2008 when the real estate price bubble burst. The economy of the entire world ground to a halt.
Still, the high prices must be taken care of. We are cruising in the outer reaches of the atmosphere and the air is thin. A young couple who want to purchase an apartment must have hundreds of thousands of shekels in equity just to get a mortgage.
It need not be this way.
The solution has been and remains this: a more flexible supply of land and the provision of benefits for contractors to more effectively meet the needs of the public. The planning process in Israel is terribly cumbersome, which stymies construction. Agreements signed by the outgoing government promised the construction of huge neighborhoods in a number of cities, including Rosh Haayin and Modiin, among others. These agreements were based on the concept of central planning, but this concept is not a good solution. Government planning is deficient as it relies on scant and problematic data and involves too many government bureaucrats.
Simply releasing land to the private sector and giving benefits to competing construction companies would lead to the creation of the necessary supply.
Imagine if government bureaucrats were responsible for marketing jeans. We would stand sweating in line for hours to pay 3,000 shekels for a single pair of jeans, which would be subject to strange regulatory requirements.
The proper solution is to free up land. This could be done by breaking up the Israel Lands Authority, although I think this would be too problematic. It might lead to the flooding of the market with land and too sharp a decrease in prices. However, the establishment of a secondary authority for the marketing of land (with minimal supervision), which local municipalities could join if approved by a referendum of residents, could produce more rational competition in the marketing of land.
Let us remember that hanging above the housing bubble is the specter of a new rain of demand. The Jews of Europe are in distress and this could lead to a significant wave of immigration to Israel. While the immigration of Jews to Israel is always a welcome thing, particularly with the rise of radical Islam and anti-Semitism in Europe, the Israeli housing market in its present form would not know how to deal with a major immigration wave.
The elections this week saved us from the 0% value added tax plan. But we still must deal with the housing crisis. The time has come to free up new resources and adopt a fresh approach. The people of Israel voted for the Right, so it is time to provide them with a rightist economic solution, based on an open and competitive market, with minimal regulations and maximal competition. A market like this would do the job and provide the right number of apartments, and ultimately lead to sane and proper prices.
Right in the center of Israel a huge land bank is vacant and waiting to be settled.
Once homes are built, the law of supply and demand will cause prices to moderate very rapidly. Nobody is forced to relocate there, though many today are waiting in line. Those that do establish there will make for prices in the rest of the country to fall as well.
Judea and Samaria could easily absorb the 50’000 new homes required every year to house a growing population. There is space enough for everyone to have the house they dream of, even with a garden and a plot for a Sukka.
Land is abundant, and real-estate will be inexpensive. Just construct the roads for quick acccess in order to facilitate work and commerce for residents who rely on commute.
Jerusalem is expanding at its seams, the place to start with urgently is the area designated E1.
Open up the vacant land of area C YS as envisioned in the LON mandate and create a US style Israel Homestead Act. Create immigration, Jewish settlement and a building boom in YS with land grants to diaspora Jews who immigrate to YS and build. the legal justification is based on mitigating the damage of obstruction to Jewish settlement over many decades under UK, Jordan and GOI administration. It is the same basis as affirmative action programs which seek to restore justice and mitigate damage from prior unjust an illegal behavior. A massive land rush and building boom is justified to restore justice as quickly as possible. but then that would require an Israeli gov and PM who actually believe that Jewish settlement in YS is legal.
So……….. never mind 🙁