Housing price shock: the day the purchase tax became a "straw widow"

Why are all the steps taken by the government to cool the real estate market failing? A major part is related to supply, but another part is related to an unfamiliar phenomenon for decision makers: investors who do not speak financial language. Yes, there is such an "animal" Or be required to take undemocratic steps

Nir Kipnis

17/04/2022

Sunday, 17 April 2022, 11:11 Updated: 11:50

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We try to solve most of the problems in our lives by relying on past experience - whether through restoring successes or drawing lessons from failures.

This logic usually gives us beautiful results.

Relying on gut feelings, sometimes contrary to logic, is like trying to shoot a basket from half a yard: if it hits, you come out big.

On the other hand in 99 out of a hundred cases, you are likely to fail.

In order not to get bogged down in theoretical philosophical discussions, an example is given of cases where relying on past experience came back to haunt us: Graduates of the Second Lebanon War, for example, well remember how the so-called "straw widow" practice became a death trap in rural villages. Southern Lebanon.

The conditions on the ground seemed so misleading - and until the senior command recovered, fighters paid with their lives for trying to replicate a solution from one battlefield to another.

Good to know (promoted)

Pesach without pain and with a special operation at B-Cure Laser

Served on behalf of Bee Cure Laser

New immigrants at Ben Gurion Airport. A welcome phenomenon, but also one that will only increase the demand for apartments (Photo: Flash 90, Avshalom Shashoni)

The public multiplies and so the public pays

In a sharp transition to the real estate crisis: Housing prices have soared sharply in recent years, in Israel as in the world. It will be said immediately: in real estate there are no magic solutions Perceived for him.

What can be done anyway?

You do not have to be an expert in real estate or even economics to understand that prices rise when there is a gap between large demand

and small supply. Now let's take this premise that any child could reach - and break it down into sub-factors.

We, the citizens. We are multiplying, whether through natural increase that is one of the largest in Western countries or through a unique Israeli phenomenon that has recently come up, such as immigration absorption. As a result, demand is increasing.

Who is responsible for supply? Real Estate in Israel.

Although in the middle are realtors in the form of contractors, who also contribute to the price of the final apartment, since construction also has its own costs, but while the construction input index rose by 6.6% in the last year, mainly due to the corona crisis, the price of a new apartment increased by 17.8%. .

Meaning: The increase in construction costs is responsible for less than 40% of the actual increase in price.

Moreover, the rates of raw materials and transportation are supposed to fall, at some point and in any case they are not under the control of the State of Israel.

The supply, on the other hand - is.

How do you drive away those who are not afraid of less financially attractive deals? (Photo: ShutterStock)

Three wonderful tools designed for diligent failure

The State of Israel and the current government have tried to resolve the situation using three main tools, which are usually supposed to work great in the situation: one is the increase

, which should keep investors out of the market - according to numbers it did happen: only 1,500 apartments were bought by investors last February.

The second is the registration of those eligible for

measures designed to allow those who need a first apartment priority over other buyers.

There are still no tools for analyzing the results here, but at least during the time of the former finance minister, Moshe Kahlon.

The plan had a good impact on the price of housing.

The Bank of Israel provides the third tool by

: although its intention is first and foremost a war on inflation, when mortgages become more expensive, potential buyers are pushed out of the market.

It is true that the use of a tool such as raising interest rates is supposed to be examined over time (and in any case - housing market data is from March, while interest rates were raised only in April), but on the news timeline it turned out ".

High-tech (illustration): The initial impulse of high-wage earners who do not think like investors is to "fix the kids" (Photo: ShutterStock)

Understand finances, do not understand psychology

The question that deserves to be asked, therefore, is why the government is not even able to cool the real estate market, let alone bring about a solution to the problem. And here the answer is divided into two:

First, as long as you do not flood the market For the (real!) Increase during the short tenure of the current government, both in land marketing and in the number of construction starts, the gap between supply and demand only continues to

widen

. Potential buyers can be eliminated and demand reduced by increased purchase tax on investment apartments or through the increase in the price of money.

The average salary in the high-tech industry is approaching NIS 25,000 a month.

A large part of its employees (all employed people account for close to 10% of the labor force in Israel) earn much more than this and to them must be added those whose salaries have skyrocketed due to their connection to the industry: lawyers, accountants and other service providers who linked their future to the industry In their toil.

All these people "bring home" every month a salary of tens of thousands of shekels - and when there are hundreds of thousands of such, which did not exist in the economy before the high-tech era, it is a new type of buyers: whether they are housing developers or buying apartments, it is very difficult Scare them with financial "sanctions", since money is the main thing they have in abundance.

Anyone who thinks that the fact that long-term investment channels are more attractive than real estate, perhaps understands finances, but not people. Let's take the senior high-tech worker who brings home NIS 50,000 a month. He does not see himself as an investor, By upgrading the family apartment (which at least adds the old apartment to the offer) and later by purchasing apartments for his children. How many apartments? As the number of children in the house !

. The paradox is that as the price of apartments rises, so does the desire to "arrange the children in life" by purchasing an apartment that will allow them an easy start in their adult lives, a point we will return to immediately.

Paradoxically, rising prices only fuel demand (Photo: ShutterStock, Shatterstock)

Or a "Chinese" solution - or flooding the market

Although most of the people employed in the high-tech industry and its satellites are in the central area, since buying an apartment, especially apartments in Tel Aviv, for example, is not an easy task for senior earners whose net salary reaches tens of thousands of shekels a month. On the prices there too.

These "real estate investors" are an animal that the government does not yet know: they have money to invest, but they do not think like investors

... Important note: Let no one think that we came to mourn the success of high-tech or the well-being of the workers of the industry.

And after we have written the obvious (but the obligatory), we are asked: What is the solution to these?

How do you keep buyers away from the market who do not just listen to economic-financial logic?

There are solutions, but they are not from the field of the free economy.

In a country that is less sensitive to civil rights, including property rights, it would have been easy to enact a law against the purchase or even possession of more than one apartment per family ... Since such legislation is out of the question in a democracy, the government would have no choice but to flood the land.

Paradoxically, the continued rise in prices is also an important player in the psychological field: in a market where prices are only rising, there will always be more investors, no matter what barriers the government sets.

Who does not want a commodity whose price just keeps rising?

On the other hand, a decrease in the price of apartments, even a moderate one, will reduce even the primal urge to "arrange the children" through the purchase of another apartment.

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• Real Estate

• Price per occupant

• purchase tax

• Hi-Tech