The sharp rise in prices of 13% in the housing market in the past year is due to demand, according to the Bank of Israel report for 2021. The fact that the Bank of Israel admits that high demand is the main cause of rising prices is a turning point in the Central Bank’s statements in the past. The main problem is the “supply problem”, in order to ward off allegations directed at him from the Ministry of Finance that he is not doing enough to curb demand by imposing mortgage restrictions. But now the bank says looking at the supply side shows that in recent years The demographic.
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However, the Bank of Israel is far from taking responsibility and drawing conclusions regarding its conduct. , A decision that led to a significant increase in mortgages in this segment.
The Bank of Israel is also blaming the government for managing demand. On the one hand, they see the abolition of the ‘price per occupant’ program in July 2020, and the reduction of investment tax for investors in September 2020, as major causes of the outbreak of demand during 2021. But on the other hand, they criticize investor taxation. Regarding the renewal of programs such as “price per occupant”, the bank is not enthusiastic, and it calls the demand management plans as programs that bring “volatility and uncertainty to the housing market”.
The bank does not articulate its perception clearly, but reiterates that for it the main problem in the housing market is still supply. The bank speculates that the government policy around the housing issue is characterized by inconsistency, which leads to an imaginary or real (in the past) sense of scarcity that raises demand.
On the supply side, it has been argued that since 2018 there has been a decrease in the density of housing (dividing the number of residents by the number of available housing units, NIS). Were higher than the general trend line.
On the demand side, the Bank of Israel is blamed for the changes in government policy, a reduction in the purchase tax that brought investors to the market, and the abolition of a price-per-tenant program that led those waiting for lotteries to enter the free market. The bank also goes back to 2014, when Lapid announced a zero VAT plan, and the announcement itself led to a drop in demand until it became clear that the plan would not be implemented.
Another issue examined is a claim according to which in Israel – like other countries in the world – real estate prices rose due to an increase in demand for large apartments, garden apartments, and ground-level apartments. Landfills have risen at higher rates than small dwellings, but the increase in small dwellings has also been significant, so the demand for spacious dwellings should not be seen as an explanation for the extreme rise in prices of 2021.
The proportion of high-tech workers among apartment buyers has not increased in the three years
Another theory tested is the “high-text” theory. According to the theory, the wages and value of options of high-tech workers soared during the Corona years, and these led to upward pressure on housing prices. The bank found that the proportion of high-tech workers among apartment buyers has not risen in the last three years and has even fallen slightly. However, there is one exception, and that is the city of Tel Aviv, where the proportion of high-tech workers among apartment buyers has risen by more than 4%. The bank does not rule out the possibility that in Tel Aviv prices have risen at a higher rate because of the high-techists, although the extreme rise in prices in Tel Aviv began before wage increases in high-tech. In any case, the bank believes that the indirect effect (those who wanted to buy an expensive apartment in Tel Aviv could not, and therefore moved to another city, where they raised prices, NIS) was limited.
In the chapter dealing with the question ‘Why did apartment prices rise’, no reference can be found at all to the Bank of Israel’s decision to lower the limit on the mortgage route in prime interest rates. But in the chapter that deals with a general view of the housing market, the bank notes, “Even if this step led to a decrease in the average interest rate on mortgages, it had only a small effect on housing prices.” In other words, the Bank of Israel only wants to enjoy the positive result of lowering mortgage costs, but not to bear the desired result of lowering the mortgage, and it has become more attractive and higher.
Still, there is also some good news in the rise in housing prices. And they concern the tenants of the apartments. The bank believes that the large demand for the purchase of first apartments, reduced the demand for rent, and therefore the pressure to increase rents was lower.