Netanyahu wary of lower housing prices

Haaretz reported:

It seems like it should be fairly simple: A politician announces that lowering the cost of housing is a goal, then achieves the goal and guarantees his political future for years to come. So why isn’t the coalition, and Prime Minister Benjamin Netanyahu in particular, doing just that?

Of all the economic problems facing Israelis, housing prices are the No. 1 curse affecting the standard of living of most citizens, except those who own two or more homes.

For those who don’t own a home - and for many who do - it's abundantly clear that housing prices are out of reach anywhere an interesting livelihood might be found.

In many cases, home ownership requires such a large mortgage that payments take up a significant chunk of the owners' disposable income.

Rising housing prices are a curse for homeowners too.

Sure, they can sell the home for a higher price than they paid, but where would they move? When people sell they are often looking to buy a larger or newer home, but the prices for those are climbing too.

If the market price for the new home has been rising at roughly the same rate as that of the current one, homeowners will need to beef up their sales proceeds if they want to upgrade. In many cases they will make up the difference by taking out a larger mortgage.

Cross-state comparisons have already shown us that Israel is one the most expensive places in the world in terms of the ratio of housing prices to net income. But that's not all. With the notable exception of global financial centers like New York, London and Hong Kong, housing prices in Israel are also high in absolute terms.

It isn’t hard to find a spacious suburban home with a backyard and garage for $500,000 in commuting distance to New York, or other large U.S. or European cities. In Israel, the same amount will get you a three-bedroom apartment in Petah Tikva.

What's more, housing in Israel is built to low standards and the surrounding infrastructure is lousy. Many buildings are ugly or neglected.

Public transportation is dreadful and makes commuting difficult. Israel’s per capita gross domestic product approaches those of European countries, but when it comes to housing, many people live in conditions found in much poorer western countries.

The constant rise in housing prices increases inequality, serving as yet one more way to enrich one class at the expense of another.

After all, typical real estate transactions involve young couples with barely any means forking over payment to people of substantial means.

The profits go to landowners, builders, stockholders in the bank that's putting up the mortgage, as well as vendors and importers of home furnishings and, of course, bribe takers in the civil service. Much of the Israeli population is enslaved to a home and its mortgage, laboring for decades to transfer money to people of means.

Despite all this, Netanyahu and his finance minister, Yair Lapid, don’t really want housing prices to go down, even though they probably wouldn’t admit it. That's because it doesn’t fit their economic, political and personal agendas.

The increase in housing prices also suits Netanyahu in the political arena.

Israel's rich, whether they are business titans or high-ranking civil servants, are most powerful lobbyists, and they don't want to see prices drop. Lower prices aren’t good for banks, so the banks will pressure the Netanyahu government to keep them high.

Lower prices aren’t good for business moguls who own construction companies or have extensive personal real estate holdings, so they’ll pressure Netanyahu too.

A drop in prices would also be worrisome for the regulators, so they'll add to the pressure. And the prime minister doesn’t like being pressured.

Then there is the fear factor, the strongest driving force by far for any politician wary of having to give up the seat of power. That goal would be threatened if the Bank of Israel's dire warnings came true.

The Israeli central bank frequently warns that if falling housing prices were to coincide with an employment crisis, bank stability would be undermined and the result could be an economic crisis similar to the sub-prime crisis that threw then entire world into recession in 2008.

Consultants, whether professional economists or self-designated “experts” operating on their own behalf, warn Netanyahu that if housing prices drop, builders will stop putting up new homes all at once and the real estate industry will enter a deep freeze – with the entire economy following in its wake.