According to an analysis published by the Bank of Israel, in the past year housing prices have risen by 13%, an unusual rate compared to recent years, but not much different from other countries in the Corona crisis | Not the shortage of supply, not the low interest rate, not the change in the composition of the mortgages and not the construction inputs, the Bank of Israel mainly blames the termination of the price per occupant program
A report published today (Tuesday) by the Bank of Israel for 2021 states that the change in the lottery policy, the abolition of the price per occupant and the reduction of the purchase tax for investors by the previous government are significant factors in the rise in prices since mid-2020.
Shira Greenberg, the chief economist at the Ministry of Finance, today provides a hint of the impact of the government program on the demand for new apartments. According to the survey, in January 2022 4,400 new apartments were sold, a jump of 27% compared to January 2021 where the contractors sold 3,400 new apartments.
According to a report in Calcalist, in January this year, a total of 11,600 new and second-hand apartments were sold. This is the second highest figure in the history of January, a higher number of transactions was recorded only in January 2015. However, without neutralizing price data per occupant, no unusual activity was recorded in the month surveyed. “The level of transactions in the free market (ie not at the price per occupant, AG) last January is not significantly higher, for example than that recorded in the corresponding month 14 years ago, when a higher level of transactions in January this year could be expected.”
The average price of a price-per-tenant apartment sold in the period reviewed was NIS 1.27 million, while the average price of an apartment purchased by young couples in 2021 was NIS 2.2 million. The average wage of households that purchased price-per-tenant apartments in January 2022 was about NIS 20,000 a month.
On the other hand, the number of apartments purchased by investors fell by 32% compared to January 2021: 1,500 apartments compared to 2,200 apartments last year. This decrease is due to the increase in the purchase tax on investment apartments (from 5% to 8%) which came into effect in November 2021. In addition, 10% of investors’ purchases were made by companies and REIT funds that hold long-term rental housing files. These apartments are a product similar to a new apartment but save the need for a mortgage commitment. That means only about 1350 apartments were purchased by private investors.
A surprising fact is that the constraint on the supply of apartments did not play a significant role in the rise in prices. According to the Bank of Israel, the supply of dwellings increased faster than the rate of population growth, and in a geographical distribution that corresponds to the level of demand in different areas. The Bank of Israel notes that in recent years there has been an improvement in the number of apartments built, and emphasizes that although this is currently not the reason for the rise in prices, it is important to continue to address this issue.
High-tech workers have been widely blamed for price increases, but according to the Bank of Israel, their share among home buyers has actually fallen, except in Tel Aviv where the number of high-tech buyers has risen by more than 4%. The Bank of Israel notes that the rise in prices in Tel Aviv began as early as 2020 before the increase in the number of high-tech workers during the Corona period.
Bottom line, the Bank of Israel states that the effect of the tide in the high-tech industry on the housing market is probably limited to the city of Tel Aviv. “It is unlikely that the high-tech tide has led to a horizontal increase in apartment prices throughout the country and probably its impact mainly locally in the city of Tel Aviv,” the Bank of Israel wrote.
In Gush Dan, excluding Tel Aviv, there was a decrease in the rate of high-tech workers out of the total number of buyers of apartments, from an average of 12.6% in 2020-1019 to only 9.2% in 2021. This may reflect the transfer of buyers from satellite cities to Tel Aviv itself, write in the Bank of Israel.
The increase in the prices of construction inputs supported the rise in prices according to the Bank of Israel, but it is difficult to explain the intensity of their rise and the timing of the turnaround in mid-2020, the Bank of Israel writes. In their estimation, the rate of increase in housing prices at the end of 2021 is more than double that of inputs. “Even if the prices of inputs would have an immediate effect on the prices of new dwellings, they do not explain the timing of the general rise in prices, certainly not its intensity,” the Bank of Israel writes.
The Bank of Israel writes that the rise in prices due to global supply disruptions was not expected and therefore can not be explained as a factor that contributed to the rise in the turning point in mid-2020. The intensity of their rise and the timing of the turning point in the market in mid-2020.