The road to buying a home in Israel is only getting longer
How is it that a country that provided free housing for millions of immigrants who came here with nothing has turned its back on most of its citizens, who now can’t afford a roof over their heads? How did the house of cards of long-term rental solutions – a plan devised by the Construction and Housing Ministry – collapse in one fell swoop after interest rates rose by a few percentage points? And how is it that senior ministry officials who are invited to present their plans for solving the housing crisis find it difficult to show something orderly, making do with polite murmuring and investment predictions, with nothing to back them up because the Housing Ministry and other relevant ministries still have no budget for the coming years?
In Arab communities, 70 percent of real estate assets are held by 30 percent of the population. This figure, which creates huge societal gaps that are almost insurmountable, is assumed to reflect the state of the entire Israeli population.
A monthly net income of 21,500 shekels ($5,950), after taxes and debt repayments, is what a young family needs to make in order to obtain a mortgage of 1 million shekels. They also have to provide a down payment of 430,000 shekels, which equals precisely to 20 such salaries. But hold on, where can you find an apartment for 1.43 million shekels suitable for a young family with one or two children? In the real world, this family needs a four-room apartment with parking in an area that is at least a little developed, has decent schools and some sort of community. So you remain homeless, or in the best-case scenario, you look for an apartment in Israel’s distant peripheral areas.
Even the much-publicized lotteries held by the Housing Ministry such as the Mechir Lemishtaken (“Buyer’s Price”), where winners are eligible to buy subsidized housing, are only a mockery for young families who need a roof over their heads and don’t have family with ample means ready to support them. The “discount” the government offers consists of a reduction in the apartment’s price, which is inflated to begin with.
In 2022, the price of new apartments rose by 20 percent, which means that the discount offered by the government programs brought the price down to what it was at the beginning of 2022, and which the government promised to reduce. The Central Bureau of Statistics is here to help: In Tel Aviv, with a budget of 1.43 million shekels, it’s pointless to even look for housing; in Jerusalem you can buy a one- or two-room apartment for that price. In Ashdod or Bat Yam, you could potentially find a three-room apartment.
Even the subsidized programs, which are becoming more and more difficult to win with every passing year, provide almost no apartments at these prices. These programs are geared to a narrow stratum of middle-class people, some of whom don’t really need state assistance but have no reason to forgo it. The realistic price of a four-room-suburban apartment, the standard product sought by middle-class families, is close to 2 million shekels, and most young couples need a 1.5 million shekel loan, or in terms of monthly payments on a 20-year mortgage, close to 10,000 shekels a month, which is only realistic for a family with a disposable income of 25,000 shekels a month.
Risky investments
The inherent difficulty in financing the purchase of a first-time apartment has led many people to find solutions that often seem strange or erroneous from a financial point of view. One of these is taking the extra risks associated with non-bank loans bearing a high interest rate. These loans often involve amounts that exceed the limits set by the supervisor of banks. Taking housing loans at a 10 percent interest rate is not unusual for families that need to complement the mortgage they qualify for in order to purchase an apartment they deem worthwhile, or among the Arab community.
Another solution for attaining the goal of home ownership is to purchase an apartment overseas. This is actually much riskier than what people rushing to buy an apartment in Greece realize. This is an exotic investment not only for those with capital who understand all the options, but also for young people who believe that this is the only way they can ever have an apartment of their own that will allow them to keep a foothold in the real estate market.
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There is some truth to the claim that in a global setting, there is some rhyme and reason to the fluctuations in real estate prices. However, young people who invest abroad take a considerable risk, since usually the main consideration in buying an apartment is the price. Often they look to nearby countries where it’s still possible to buy small and cheap apartments, such as Cyprus, Greece and Portugal.
However, the low prices in some of these locations reflect these countries’ inglorious economic situation and the risks of investing there. In an era of global turmoil, amateurs in overseas investments must prepare for a possible freeze on cash transfers, which could impinge, at least temporarily, on their ability to enjoy the fruits of their investments. In the not-too-distant past, during the subprime crisis, Cyprus froze cash withdrawals, even imposing taxes on bank deposits. This may seem far-fetched for investors living in developed countries, but even in the United States, investment risks have grown over the last few months. In the recent past, many high-tech companies, including Israeli ones, were stuck with deposits in a collapsing bank, SVC – probably not the last bank to find itself in dire financial straits.
Buying half an apartment
Ultra-Orthodox society is almost completely excluded from the mortgage market, and is not part of the housing market due to many members’ inability to meet rising prices. Most of the subsidized housing offered to the general public is not relevant to this community, which is the most rapidly growing one in the country, because the style of high-density construction doesn’t suit their lifestyle, and because of the prices, which are too high for them, even after a government discount. Two ultra-Orthodox housing ministers did not significantly change the situation for Haredi society, although the newly-arrived minister Yitzchak Goldknopf may bring about some change.
The available home supply that suits the financial capabilities of Haredi society is limited, and has shrunken even further in view of rising housing costs. In many locations, real estate prices demarcate the boundaries between ultra-Orthodox and secular residents. Rising prices have blocked the ability of the ultra-Orthodox to settle in Arad, and have limited their expansion in other mixed cities such as Kiryat Gat and Ashdod. A bitter struggle broke out in Ashdod between the ultra-Orthodox and developers who took on urban renewal projects, which pushed up prices and resulted in the construction of new housing not suited to the Haredi lifestyle.
Ultra-Orthodox customers’ access to credit and mortgage markets is already limited. Unlike in the Arab community, there is usually no issue with real estate being registered – most assets are properly registered with the Land Registry. However, the dire housing shortage has been leading to the splitting of apartments and building code violations, which results in unregistered apartments or parts of apartments. In the case of two families who split and share one apartment, the buyer of the “second half” doesn’t qualify for a mortgage.
The banks can’t always work with the different financial culture prevailing in Haredi society. It’s a community with a great deal of cohesion and mutual support, but there are fewer pay stubs and bank transfers. With average incomes that are tens of percentage points lower than the general population’s average, and with pay stubs that are often unreliable, ultra-Orthodox people have to make do with much less support from the banking system, relying instead on a network of financing institutions and help from family members.
All of these factors, along with a dire shortage of available homes, have created a large number of apartments in the Haredi community that differ greatly in size and standards from what one would find in the general population. In recent years, great efforts have been made to build housing that suits this population, in Elad, Beit Shemesh, and even in Bnei Brak. But the shortage has only worsened.
This is what lies behind the growing pressure from the Haredi community – pressure that may soon bear fruit – to create a new ultra-Orthodox neighborhood in western Kiryat Gat. In recent years, it has become one of Israel’s fastest-growing cities, with apartment prices there already crossing the 2 million shekel threshold. It will be interesting to see whether ultra-Orthodox newcomers to the city will have to pay these prices – something that could foil the Haredi initiative even before it is launched.
Institutional discrimination
Another segment of the population that is almost entirely excluded from the housing market is the Arab population, which comprises 20 percent of Israel’s citizens. A study by Prof. Danny Ben-Shahar, Prof. Stuart Gabriel and Dr. Elior Cohen describes how the gap between Jews’ and Arabs’ ability to purchase an apartment has been growing over the years. The discrimination starts with the application for a mortgage. This is not racial discrimination; it is institutional discrimination caused by the banking system’s incompatibility with the Arab community’s way of life. The Finance Ministry has consistently objected to suggestions to give state guarantees for mortgages for Arab buyers, at least for eligible young couples. It’s unlikely that this policy will change with Finance Minister Bezalel Smotrich at the helm.
Due to unregistered property, illegal construction and the Arab community’s social traditions, banks will need a degree of sophistication and a different set of rules to work with Arab customers. Small banks trying to operate in market niches where there is less competition know how to finance construction and housing in Arab communities. The banks operating in this area are the American-Israeli Bank, the Bank of Jerusalem and the Mercantile Discount Bank. But the major players in the housing market, Bank Mizrahi-Tefahot, Bank Leumi, Bank Hapoalim and Discount Bank, hardly have a presence in the housing market in Arab towns – even in an era when banks don’t actually need a physical branch in order to provide services everywhere.
The banking system has no statistics about how many Arab clients take out loans, since people seeking credit don’t have to specify their religion or nationality. The Bank of Israel estimates that Arab citizens receive 2 percent of housing credit. Among people getting any type of housing-related loan, Arab customers are estimated to account for between 1 and 3 percent.
The long-standing discrimination that has generated the critical housing shortage in the Arab community was caused by the Housing Ministry. Nearly all the land in Arab cities, towns and villages is private land, and the areas surrounding these Arab locales were mostly transferred to adjacent Jewish local councils, some of them expropriated from their private owners based on different pretexts. In the absence of state lands close to these communities, the state hasn’t initiated construction there. Among the reasons given is the explanation that “high-density construction does not suit Arab society.”
But there have been some changes in recent years. New plans are in place for high-density construction on private land, and here and there are invitations for bids for new construction on state land. However, most of the bids for high-density construction in Arab towns have failed, and many of the plans are stuck due to disputes between the state and local authorities. For a great number of Arab families, the path to home ownership takes them to mixed Jewish-Arab communities, some of which started out as Jewish ones and are now gradually turning into mixed ones.
The recently-formed government is not offering any new hope, at least for now, for the majority of families that have found themselves excluded from the housing market in recent years. The budgets available will be smaller, and there will be a limited ability to increase the housing supply. The gap between the top 30 percent, which have access to the housing market, and the rest of the population, will continue to grow.