State of the Israeli Real Estate Market: Problems and Solutions
Interview with Roni Brik, President of the Israeli Manufacturers Association.
The Israeli real estate market is undergoing profound changes. Some would even say that we are at a pivotal time and that the era of high prices is finally coming to an end. However, others refute the numbers and say that it is premature to predict in the long term what will be the real estate industry's trends.
For the last 18 months, Roni Brik has been president of the Israeli Manufacturers Association, representing entrepreneurs and promoters in Israel. In this interview, he explains his vision of the current real estate market and how it is possible to solve this long-term crisis of lack of housing and high prices.
He says: "The current real estate market is very favorable for us entrepreneurs and developers. We will go through a change from a very unstable market to a more stable market. "
According to government statistics, real estate prices are falling. Do you agree ?
No I'm not. Figures show a drop in house prices over the last few months compared to the previous months. In addition, this includes the price of subsidized houses. Prices should be monitored on an annual basis. Including subsidized houses in the average of the national price distorts the numbers.
However these are positive developments, the price increase is moderate. Our economic department estimates that prices will increase approximately 4.5% this year and 3.5% in 2018. For us this means stability.
The dramatic increase in prices is bad for us. When we get funds to build our projects, we have to increase 1/3 of our prices. When prices rise, the cost of land and the cost of labor increase at the same time. The cost of the project climbs and the amount of money to invest too. In addition, in an unstable market we can not do long-term projects. For us, the current situation is very favorable to us.
What is the major problem of this industry?
The shortage of building land, the shortage of work and the regulatory regime to which we are subjected. The shortage of building land has, however, subsided. The majority, if not all, of the land offered for sale by the Israel Lands Authority (ADI) relates to targeted price projects. The Ministry of Finance now allows contractors who have won land offers to use 60% of this land for a project at targeted prices. This is for young couples or families who do not own a home.
The remaining 40% of land can be used to build homes for a more general audience. This helped reduce the problem of land shortages.
Our next big challenge is the shortage of construction workers, indeed, this is the major reason for the increase in production costs over the past five years. We hope that this problem will be reduced by the agreement with China, which will bring workers into Chinese buildings.
I would like to talk a little about Palestinian building workers. They do a great job; we are very satisfied with the quality of their work but we have a complication. So that they can be at work at 07:00, they must get up at 04:00, and to return home, they must stop working at 15:00.
The scarcity of land and labor is not only a problem for us promoters, but it is also a problem for the government. If they are willing to solve the problem of land scarcity and price increases, they will have to make land available; they must also ensure that we have sufficient manpower for current needs. In addition, we work under extremely restrictive regulations.
Can you give us some figures?
The current accumulated housing shortage is 149,000. Since the 2000s, housing starts have generally been lower than the annual creation of households.
In 2016, some 58,000 households were created and in the last five years the annual average was 54,000.
In 2016, housing starts reached 53,300 and in the last five years the annual average was 48,840.
This growing pressure on real estate is mainly caused by excessive demand. As long as this is still the case, there will always be a growing pressure on house prices. What can be deduced from these figures is that the accumulated housing shortage has increased by 50% since the 2000s (from 105,000 to 149,000 in 2016). For this shortage to disappear in the next ten years, we will need at least 75,000 new projects.
According to the predictions of our economic department, by the year 2050 we are going to need three million additional homes. This means doubling the stock of available housing or in another term it means reforming the ADI marketing process.
Are you ready for this?
Yes we are. In the 1990s, during the wave of immigration of the former USSR, new housing construction rose to 100,000. Nowadays it is much less but if we compare the amount of square meters we are not so far.
In your opinion, are Targeted Price Projects and Tama 38 positive developments?
Yes they are. The Targeted Price Program will allow many young and old families who do not own a home to have a chance to buy a home. I also think that Tama 38 is a good thing.
The central government is financing part of the infrastructure needed to increase residential projects and that is a good thing.
However, despite the fact that the Targeted Price Program is a positive development, there are some side effects. It targets only young married couples and families with low purchasing power who do not have homes of their own. From a statistical point of view, they represent only a small part of the population and this program does not provide housing for most of the inhabitants of the country.
Therefore the day this program is finished, the demand will still fly and the prices will go up.
Can prices increase more than they already are?
In the last ten years prices have doubled and wages have increased by 33%. Real estate has therefore actually reached a high price level, however it must be kept in mind that this is a free market and that prices are the result of supply and demand. This means, among other things, that the prices are all affordable otherwise there would be no sale.
I would like to emphasize that these high prices apply mainly to the central eras of the country and are the result of the high price of land. In areas such as Afula, Shlomi and Afikim the prices are much lower. With the recent development of the transportation system, these areas are less than an hour away by train, bus or car from business centers.
Prices in these areas are therefore lower but the fact that demand is so low is due to lack of cultural infrastructure. People also prefer to live close to their place of work.
The government has never had a holistic development plan for these regions and that is why they remain underdeveloped. To make them more attractive, the government should develop the cultural environment, infrastructure for education etc.
Why does the Tama program not take off?
Because few municipalities are inclined to promote this kind of program in their areas of jurisdiction. Municipal authorities do not have the financial resources to take over the infrastructures necessary for the population's development. Where there was a house, there are now three.
That being said, when the mayors refuse to authorize Tama projects in their municipalities they disadvantage residents. We are talking about decrepit buildings built in the 1950s or even before, some in the city center. These buildings are ugly and they create problems because they do not have a parking space. With the Tama program, these buildings are destroyed and new homes replace them or they are renovated in their structure. During this process, new apartments are added and the facade is modernized and magnified.
Source: The Jerusalem Post