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Rumors of stupid government programs have once again placed a funk on the market, and there are few real-estate transactions right now. Amongst the programs that won’t change anything are: 0% VAT, 90% mortgages for first time buyers, and target price. All are populist laws and/or programs being purported by different parties to show that they are doing something. These well-intentioned people got voted into positions of power based upon their promises of change, but are unfortunately way out of their league in terms of ability to actually change anything. Respectively the programs are being advanced by There is a Future (Yesh Atid), Yisrael is our House (Yisrael Beitenu), and the Jewish House(HaBayit Hayehudi) (amazingly I can’t find a website for this movement, if you know of one, please let me know).

0% VAT?

0% VAT? The builders raise a glass to increase profits.

We have seen a tremendous slow down in the market as a result of this chatter. A quick look at the programs being put forward suggests that none of them will have a profound effect on real estate prices. Mainly they will let politicians pretend that they have done something while in actuality they have done nothing.

Yair Lapid, Minister of Finance and head of There is a Future party thinks that he will lower the price of homes via offering first time buyers an exemption from paying 18% VAT on new homes (there is only VAT on new homes, second hand homes pay purchase tax and potentially a capital gains tax). His misguided belief is that the prices of second hand real estate (the bulk of the transactions) will lower to remain in competition with the less expensive new properties.

Orli Levy

Orli is out of touch

We have plenty of experience to show us that this is not the case. When VAT was lowered by a half of a percent or a full percent in order to lower consumer prices, we saw the manufacturers and/or the retailers  swallow the lion’s share of the difference with almost no change in consumer prices. Minister Lapid has lots of good intentions but lacks real world experience.

90% mortgages? I don’t know who told Knesset Member Orli Levy-Abacsis that this might be a good idea. I fear she is slightly out of touch with the economic realities facing most young families in this country. What young families need isn’t a bigger mortgage, what they need are cheaper houses. Raising the financing possibilities for young couples will enslave them to the bank, and instead of starting them on the property ladder it will lock them into the lowest rung. She’s living in the same fantasy world as Lapid, thinking that because she wants something it will happen. I’m guessing that MK Levy-Abacsis doesn’t have a mortgage, and has no idea what the disastrous long term implications of a 90% mortgage are.

Both of these programs focus on somehow magically lowering real estate prices. It isn’t going to happen. As we have seen from years of ineffective Bank of Israel regulations on mortgages, the ability of the government to lower real estate prices through programs or regulations is minimal.

The last of the threesome is Uri Ariel’s target price. The tastefully named Minister of Construction understands something that his novice  colleagues are missing: the solutions to Israel’s real estate challenges are complicated and can only be solved by systemic changes on the  construction side. This program probably will do very little to make a difference, but the Minister might finally be the right man in the right job at the right time. The most important thing that Ariel has to say is:

Uri Ariel

Build! Build! Build! Minister Ariel is the Man!

We will continue to sell, and sell, and sell, and then sell some more. The more apartments that we sell, the lower the prices will be. source The word he uses in Hebrew is שיווק- market. What he means isn’t that the government is entering the retail housing market. What he means is that the government will sell more land to construction companies upon which to build houses. As much as they want.

He hopes that coupled with his target price program, the massive marketing of land for new construction will greatly increase the supply of housing, and at the same time create a market for less expensive housing.

I don’t have a lot of faith in the target price portion of his program. However, I’m a huge fan of supply and demand. Kudos to Minister Ariel for understanding basic economics better than the Minister of Finance!

Another important accomplishment of Minister Ariel is changing the name of his office from The Ministry of Construction and Residence to The Ministry of Construction. The Minister gets it. His job isn’t to house people, its to get buildings constructed. The laws of supply and demand promise that they will be filled, and prices will adjust accordingly.

It is very rare that I will say anything positive about governments and even rarer about politicians, so cherish this moment, it may never be repeated. Minister Ariel is the man! Build I say, build, build, build! Build in the North, the South, Jerusalem, even Tel Aviv. Build everywhere people want houses.

If you’re considering purchasing a house and are waiting because of these programs, in most cases I would suggest that you go ahead and make your purchase, don’t wait. Take advantage of the lack of transactions and general funk in the market and make a much lower offer than the asking price, you might be surprised what you can get. Waiting years for prices to come down isn’t a great idea. Prices might come down slightly, but in the long run not much.

It’s a buyers’ market, go buy something.