Israeli society and divisiveness go hand in hand. Arab-Jew, Ashkenazi-Sephardi, Sabra-Oleh, Tel-Aviv – civilized. However, for those of us who live here, one divide painfully stands out; owner-renter. Real estate is a great investment, but is increasingly difficult to attain. However, a study by Dr. Noam Gruber suggests that the housing market is ready to come tumbling down. Rejoice and read on all you renters (owners welcome too)!
For a long time, the supply of new houses has not kept up with demand leading to a massive increase in housing and rental prices. A lack of available land and delays in getting permits have made keeping up with supply difficult. In addition, older Israelis with more capital at hand are buying multiple apartments making it difficult for younger Israelis to compete. It seems that when they’re not at the shuk forming human walls around the one stand that you need to get to, they’re buying aparments.
Government policies to address the housing crisis have tended to focus on making it easier for first time home buyers to buy. The approaches have ranged from interesting at best to confusing at worst. Lets make it clear that the stance of Kalpi is that all Finance Ministers should graduate high school.
Gruber points to a major flaw in focusing on first time buyers (besides for it not increasing supply). It turns out that for every level of income, renters are more likely to own an investment property (one they don’t live in) than those who live in an owned home. These renters are likely getting help from their parents who may already own an apartment or two.
There is a silver lining in the cloud of high prices though. In 2013, contractors began to catch up to natural growth in purchase demand. As rental prices come down, demand to buy investment apartments will come down even while supply continues to rise. As long as contractors can keep up the pace, we may be looking at a crash in housing prices that many seem to think is impossible in this country. Of course, this silver lining is only for those of us who don’t own apartments. For those who do, feel free to transfer ownership to the Avi Bieler Wants a House Fund. I prefer a yard.
Gruber does note that as long as interest rates remain low (think of interest rates as the price of taking a loan), easy access to loans will help to prop up the demand for new apartments, something that could help prevent a sudden crash.
Currently the site holding the paper is down, but you can check out the Shoresh Institute press release here.