Trends of Dwelling in Israel- positive versus negative incentives

Background

Israel had experienced short terms of real estate price fluctuations but long terms of rising. We can imagine why: When the state of Israel with a few hundred’s of thousands of Jews in its dawn and a very shaky odds for surviving, is now one of the powerful nations in the Middle East with one of the strongest economies and armies that can secure it from its zealot enemies.

It is reasonable to contemplate that prices rise will proceed. The question is why do we experience short terms of fluctuations. The answer is also simple. In an attempt to decrease prices of real estate and to let our youngsters buy their first apartment in their homeland, the Israeli government increases taxes and levies in order to decrease demand from investors and to draw a line of cheaper prices to Jewish citizens who live here or wish to immigrate from other states.

 

Trends and cause

One basic question relates to the human mind in order to understand trends logic. First, people would like to feel “safe” and “safe” is to expect what happens next. If prices are up, everybody thinks that there is a demand and vice-versa. We can see that constructors and entrepreneurs think that the center of Israel is better to build on, than in the north or south. We can see the below charts and get the idea. If we do think that this what happens, we will continue to develop the center of Israel at the expense of the North and the South. This thinking fuels the next periods and trends can be more of the same. After we get used to it, this is our reality.      

 

New permits of Dwelling Units
Period Centre North South Tel Aviv Haifa Jerusalem Total
1995 26,453 9,312 10,663 5,267 7,370 4,055 65,234
1996 16,694 10,066 9,867 4,851 8,702 6,035 58,217
1997 14,722 9,997 11,967 4,302 5,876 4,290 57,442
1998 11,886 7,309 8,183 4,549 4,141 2,960 42,370
1999 10,361 6,402 6,144 4,392 4,442 2,178 39,999
2000 14,513 7,031 6,203 4,152 3,759 3,861 43,137
2001 8,652 7,545 5,339 3,518 3,859 2,252 33,188
2002 10,671 6,092 6,577 4,021 3,141 2,530 34,487
2003 9,004 5,689 5,007 3,264 3,296 2,020 30,248
2004 9,600 5,144 3,247 4,292 2,258 1,993 28,331
2005 10,547 5,250 4,506 4,856 2,673 2,808 32,478
2006 9,464 5,654 2,902 4,888 2,165 3,858 30,468
2007 9,361 6,471 3,216 4,906 2,002 3,027 31,160
2008 12,164 5,715 3,170 4,293 2,142 2,898 33,171
2009 12,289 6,231 3,415 4,612 2,669 1,757 33,477
2010 17,352 6,225 6,778 5,326 3,489 3,152 43,353
2011 18,739 7,165 8,111 6,334 4,602 4,276 50,339
2012 13,215 7,837 5,746 7,894 4,933 4,520 45,515
2013 16,600 8,202 5,957 6,895 5,740 4,172 50,153
2014 13,634 8,079 5,544 7,063 7,646 4,081 47,967
2015 14,377 8,678 6,980 8,679 10,577 4,070 55,715
2016 13,680 7,993 9,970 7,690 7,947 4,287 54,055
2017 14,962 6,675 8,030 7,874 10,896 3,877 54,271
2018 16,047 8,123 4,142 14,831 6,191 5,216 54,271
Total 324,987 172,885 151,664 138,749 120,516 84,173 1,049,046

 

New permits of Dwelling Units
Period Central Israel Northern Israel Southern Israel
1995 40.55% 14.27% 16.35%
1996 28.68% 17.29% 16.95%
1997 25.63% 17.40% 20.83%
1998 28.05% 17.25% 19.31%
1999 25.90% 16.01% 15.36%
2000 33.64% 16.30% 14.38%
2001 26.07% 22.73% 16.09%
2002 30.94% 17.66% 19.07%
2003 29.77% 18.81% 16.55%
2004 33.89% 18.16% 11.46%
2005 32.47% 16.16% 13.87%
2006 31.06% 18.56% 9.52%
2007 30.04% 20.77% 10.32%
2008 36.67% 17.23% 9.56%
2009 36.71% 18.61% 10.20%
2010 40.02% 14.36% 15.63%
2011 37.23% 14.23% 16.11%
2012 29.03% 17.22% 12.62%
2013 33.10% 16.35% 11.88%
2014 28.42% 16.84% 11.56%
2015 25.80% 15.58% 12.53%
2016 25.31% 14.79% 18.44%
2017 27.57% 12.30% 14.80%
2018 29.57% 14.97% 7.63%

 

So, now we are almost sure that the majority of investors, constructors and entrepreneurs do believe that the center of Israel is a better place for them, for all kinds of reasons: Standard of living, development, high demand and big profits.

 

The government as a factor

Even the government can’t solve these trends and increase of prices. Why? Governments work according to obsolete policies. They can ask for more taxes regarding highly demand areas, investors etc. This can’t work for long, because nobody can ask for more taxes whereas people can’t earn and people can earn more in the center, better than in other places. We can’t provide incentives to build the North or South because budgets are limited and fiscal policies derive only from public beliefs that generate more income. Giving these presumptions, governments can’t go against public trends and/or beliefs. If it tries to, it will probably send our economy into a recession.

 

What can we expect for?

Providing these abovementioned ideas, we can make other parts of Israel to thrive the same as in the center, by persuading the public to believe that their standard of living will not be affected. Governments work slow, bound to laws and can’t really be effective in persuading people.   

In democracies, the public decides what will happen. The way is to make the public believe can be generated both by entrepreneurs and investors.

 

Instead, our government restrict profits from entrepreneurs and doesn’t develop other places in the same way as it does across the center because it can’t really lead. Market forces are much stronger. Municipalities contribute to it as well and consume whatever they can to enhance their wealth.

Conclusion: More of the same, unless we divert our trends by beliefs and facts on the ground.

 

Numbers and Calculations

 

The annual average number of immigrants in the last 4 years is around 25,000 (which requires around 7,000 new dwelling units). The fertility rate is approximately 2% of the total population, so the top expected demand for new dwellings are around 185,000 per annum. Part of the population is married (30%) minus the divorce rate (27%). The death rate in Israel is approximately 0.3% of the total population (27,000) and therefore we can figure out the number of net new required dwellings.  

The population in Israel is around 8.9 Million. As mentioned above the top number of new required dwelling facilities is 185,000 per annum. If we take it and subtract the married couples, mortality rate and add divorcees we get the following result:

185,000-mortality-married couples + divorcees= 117,785*

*(you can turn to the publisher for the exact computation)

This means that each year we get a shortage of approximately 65,000 dwellings units. If we believe that a large part of the population wishes to leave in the center, we can assess a shortage of hundreds of thousands of dwellings units in the next few years.

 

What our options are?

 

First, I offer people who have money to buy apartments in areas of high demand. I believe that prices will continue to rise. Secondly, it is important to see whether the government and/or municipalities have extraordinary plans for certain areas even though these areas, for now, do not have high demand. This may be attractive because of environmental, cultural facilities and infrastructure developing.

 

We believe that there is no escape but to realize that Israel is and will face housing crises because of bad governmental performance and market forces. Younger generations will have to look for other places than Israel, to live in. Anyhow, an increase in differentiation and alienation between socio-economic classes and groups will grow and many young and educated people will have to emigrate, unless we find stable solutions.