The snail from the devil: The hesitation of the Bank of Israel is hurting the real estate market

The reluctance of the Bank of Israel with regard to raising interest rates in the economy could drag the country into a destructive inflationary cycle, which will cause the insane rise in housing prices to continue.

Raising the interest rate by a quarter of a percent does not contribute to the realization of the apartment's dream.

And much more drastic measures must be taken.

opinion

Yaakov Nitzan, guest column

09/05/2022

Monday, 09 May 2022, 10:11

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The corona has led to a global crisis that has accompanied us for the past two years as well.

Is the plague nearing completion?

Days will tell, but the crisis that accompanied it has no doubt ended.

You can see it at Ben Gurion Airport, in the concert halls, in restaurants and in malls. And with the end of the crisis and the appetite - inflation is now raising its head in almost all industrialized countries. Upwards - and in a big way.

While some Israelis burn money on expensive flights, luxury hotels and restaurants - a matter that receives a lot of weight in the media, it is difficult to see those who have already been hurt first as a result of the overall price increase - the lower deciles - the elderly, Holocaust survivors, new immigrants and young couples.

Not only consumer goods are becoming more expensive - also the raw materials for industry and real estate, which adversely affect all prices in the economy. When you add to that the war in Ukraine, which also adversely affects energy prices, you get sustained inflation, which will very soon hit us all.

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Prices continue to rise - and the Bank of Israel is ripe (Photo: Reuven Castro)

There are debates among economists as to whether inflation is good or bad, but one thing is for sure - inflation has a negative effect on the real estate market and causes prices to rise. Not only because raw materials become more expensive, In the best way. When there is inflation, investors and everyone who has the opportunity run to buy apartments, demand rises and prices rise and rise. Rise fuels inflation and returns, God forbid - a vicious circle

. This number roughly led to the outbreak of social protest in Israel, so it is no wonder that the Israeli government has an interest in fighting housing prices.

The best weapon for fighting inflation and the influx of apartments is raising interest rates in the economy.

The

interest rate produces greater profitability for long-term savings, which can be an alternative to the real estate market, and high interest rates also adversely affect the price of the mortgage repayment - which lowers everyone's appetite for buying apartments.

Too easy, that does not change anything. As long as the alternative interest rate for the investor is lower than the return on investment in the apartment - people will continue to buy apartments and the vicious circle will continue to revolve around itself. , And Israel's entry into a destructive inflationary cycle.

In order for us to prevent this, two processes must be promoted in parallel.

First, to continue with all our might the efforts of recent governments to change the supply-demand ratio of residential real estate and try to bring it into balance. The existing annual demand is 60,000 new housing units, in addition to the past shortfall of about 150,000 housing units. The supply and balance it against the demand, bureaucratic barriers must be released in urban renewal projects, the TMA 38 plans must be given certainty and the Shaked plan must be approved as soon as possible.

Afraid to press the ascents button.

Governor of the Bank of Israel Prof. Amir Yaron (Photo: Tal Shahar)

Yaakov Nitzan (Photo: Arik Sultan)

These are not simple procedures, which will require a lot of synchronized work between all government ministries, RMI, the director of planning and local authorities

. Only if the interest rate rises to a minimum of 1.5 percent in the coming year, as expected by the Bank of Israel, it seems that the Bank's macro forecast of an increase of more than 3 percent in inflation in the coming year can be prevented

. The citizens of Israel have a border. Only

uncompromising war on inflation and housing prices, through the above processes, will maintain the stability of the state and the economy. And preferably one hour earlier.

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