Future Finance Minister Moshe Kahal has already showed his first idea of ​​reducing housing prices: a 25 % purchase tax on buying homes for investment purposes. It is planned to implement it immediately. If we leave, regardless of the difficulty in determining what is investment and what is home and ignoring the fact that only Israelis buy homes in the names of their children to avoid these taxes, Kahlon attacks the wrong problem and his tax idea will also have negative secondary consequences. Allow me first to explain the negative consequences and danger in its short -term proposal and then search for a different solution.

Based on the talks I had with real estate owners, I think the tax will stop the increase in housing prices at the present time. It will reduce demand in the market. However, it has a very negative result. Investors have an additional role in the market until after the raising of prices. They wipe the market at the market price when there is a crisis. Kahlon’s plan to stabilize housing prices will work through a 25 % tax, as long as there is no economic or stagnation. However, if there is a shrinkage or high interest rates and homeowners need to obtain liquidity because they have debts or real estate loans that they cannot pay, homeowners will struggle to sell their apartments.

When you strike a credit crisis, banks freeze and make it difficult to obtain a mortgage. When interest rates rise (and it will surely work), it becomes difficult for people to bear the mortgage payments and buy houses. This means that the new home buyers who need a mortgage to buy a house will not be able to buy an ordinary homes from those who need to get out of real estate loans. With a 25 % tax, investors will not want to pay the price that the home owner needs to pay its mortgage. This means that the seller will get 25 % less money for his home, making it difficult to pay his mortgage when he is in distress. It is possible that it is less than the decline that usually occurs when the investor cannot remove the market. The suggestion of empty people will be killed in distress at the greatest time they need, and therefore it is myopia.

The reason for the costs of housing a lot in Israel is actually straight straight forward: there is a lack of supply. We have a execution of three main reasons:

1. It takes a very long time for the Israeli lands authority to build to build so that we can be a scarcity/

2. For nearly a decade, the government decided to focus on the country’s vicinity and thus freeze construction permits at the center, which reduces the supply in the main markets where there are jobs.

3. It takes forever and a day to obtain a constructive permit due to bureaucracy, legal advisors and corruption in the system. With the cost of capital by 4 %, these delays add 12 % -15 % to the cost of housing, including bribes, lawyers and troubles that may add an additional 10 %.

The only way to reduce housing prices without killing real estate loans is to increase the supply significantly. This requires the basic rethison of how to create the offer and enable housing quickly. What Kahlon needs to do is to liberate a group of lands in the center of the country and the ocean. It needs to be issued for heavy construction permits (apartments) in all regions. This is evident, but definitely insufficient.

The next thing that needs to be done is the opposite of the approvals process. Israel has land permits and planning rules that determine the amount of what is permitted to build. Nevertheless, the planning committees and regional councils spend an endless time to research the construction of proposals, and since you need to pass this hell anyway, it encourages builders to negotiate the statement. The Ministry of Housing and the Ministry of Interior must tighten all construction rules (how much you can build each piece of land, the distance from the neighbors, etc.), then tell the builders that they will receive an automatic permit within 30 days of general application if there are no objections to the proposal. Take energy from the hands of bureaucracy by creating automatic permits. With online post, you will see enough eyes to suggest and criticize it. After that, we need to have laws that punish the perpetrators who break the building law and must be enforced. These penalties should be meaningful, not just fines.

Therefore, if you build inside the code, you are outside the races within 30 days. If you want to be alarm, you should go to the boards. This will survey the council office and get the energy out of their hands, which will clean the graft. You will also get more apartments faster. This path requires the government to trust that citizens are increasing in the law and trust in the court system to distribute meaningful penalties to the perpetrators. However, it is a decisive change that we must create in society in order to reduce the cost of living and housing. More about this in my next post.