Yaron Spector, calcalist.co.il.

In collaboration with the real estate scene system

The zero-interest rate environment and low financing costs are pushing many investors in Israel and around the world to seek investment opportunities - the pink dream of every finance minister and government. Having a steadily rising and rising demand, the real estate market has quickly become one of the local investors' attraction. Supposedly great news - since the real estate market is one of the economy's growth engines, and investments in it should benefit everyone.

However, in Israel, the government, for the wrong reasons, chose to fight the demand for apartments, which comes from both investors and from young families who want to start a life characterized by economic independence. This is not an accidental hardening of their operating environment, but a deliberate policy that is reflected, among other things, in raising the purchase tax to 8% or more, the attempts to tax three or more owners (who have not yet succeeded, have not yet been buried) and of course the limitations That the Bank of Israel imposed on the banks' financing rates.

In a corrected country, the growing demand for apartments would turn into a growth of the economy as a whole, raising the GNP. As a result, tax collection would have increased - not because of the increase in the tax rate, but simply because of the increase in market activity.

The real problems are in the dark, while the state is looking for solutions under the flashlight, with tax hikes and other tools only detrimental to the housing and rental market. The state's coping should therefore be in a completely different place. Not the demand is the problem, but if the bureaucracy - approval of a city building plan takes 10-5 years, and to get a building permit, the developer (and tenants in the project) have to wait two years. These are the real problems of the real estate market.

Urban renewal is also an important element in the recovery of the housing market. The Ministry of Construction and Housing recently announced the completion of TAMA 38 (the plan for the protection and strengthening of existing buildings) in October 2022 and the deployment of an alternative plan in place. Instead of repealing the plan, it should be increased and improved.

For example, instead of adding two floors to a building, four floors should be approved - you could connect two adjacent old buildings - and instead of four floors to approve eight floors in the complex of some buildings. So will the issue of public areas and the whole city will benefit, not just the developer and the tenants.

The secret is in the supply

Another force fueling the rise in house prices is the mortgage interest rate in Israel, which has fallen slowly but consistently since the beginning of the year. The cost of the mortgage has already returned to the lows of 2016, to the days when the Bank of Israel contemplated a quantitative expansion and a lower interest rate, according to the latest updated data published by the Bank of Israel last month.

The fall in long-term interest rates, which is the main cause of low financing costs, is already affecting real estate prices today. This is because investing in border-yielding assets and projects suddenly becomes worthwhile; as well, because the zero return drives investors away from alternative investment channels and pushes them back into the real estate market. N.

If this were possible, the Bank of Israel would raise interest rates. But as it is known, it does not operate in a vacuum and is influenced by the decisions of the world's central banks, especially those of Japan and European countries that keep the interest rate below zero.

It is difficult to "build" on a change in the interest rate, so the state should take non-monetary measures to alleviate the housing shortage. But the solution, as we have said, is not a war for investors and home buyers, but rather the promotion and optimization of urban renewal, increasing housing supply and freeing land for the free market - to meet growing demand.

We have already seen that unprecedented government subsidy and investor war did not lead to the expected decline in prices, and even more so - even created a NIS 8 billion deficit that all of us, the citizens of Israel, bear today. So, it's time to think differently.