Surprising as it may seem, the shortest way to reducing the
price of housing in Israel may be to release farming land to
the kibbutzim and moshavim for development. That would take
control away from the Israel Lands Authority and allow the
free market to assert the expertise it has demonstrated in
allocating resources over the last few generations.
A number of proposals have been put on the table. Government
subsidized rental housing was suggested and, when he was
effective Minister of Housing, Rabbi Meir Porush tried to
implement it. It did not get very far and it is not likely to
in the foreseeable future. The provision of rental housing
means that someone -- either private investors or the
government -- must invest the huge sums necessary to build
the housing. Investors will insist on a reasonable return and
in this age of fiscal responsibility so will the government.
This would mean rentals that are so high that no one could
afford them: even cheap apartments costing $100,000 (such as
those available in new areas like Kiryat Sefer and Beit
Shemesh) must return at least $8,000 a year after expenses.
Moreover, planners are unlikely to agree to such a large
diversion of capital to such an "old economy" use instead of
the much more productive options that are available
elsewhere.
A newer proposal is to allow the credit costs of the mortgage
on apartments as a deduction against income for tax purposes.
This is a practice followed in the U.S. as well as some
European countries. Of course this would only help those who
pay income tax, and close to half of those working do not.
These proposals and others try to address specific problem
areas, but they do not even claim to reach the root of the
problem, which is not unique to the chareidi community. In
comparison to other parts of the world, the Israeli housing
market suffers from high prices, small apartments, lower
housing quality and often not enough units built. According
to a recent article in Globes by Professor Zvi
Eckstein and Menahem Perlman, this is exactly what we should
expect from a system that is controlled by a government
monopoly such as the Israel Lands Authority (ILA - Minhal
Mekarke'ei Yisrael).
There is ample experience, both in Israel and elsewhere such
as in the formerly-Communist countries, that a state will not
manage public resources in a way that will maximize public
welfare overall. Eckstein and Perlman argue that this is
clearly true in the case of the land available for
development in the State of Israel.
When Netanyahu took over four years ago, there was a lot of
talk about releasing vast tracts of public lands for
development. It was the conviction of Netanyahu, who has
economic expertise, that this was the sensible thing to do.
But there was no action.
Force of habit is strong, and the bureaucracy is too. It is
not easy to dismantle a powerful government office that
controls hundreds of millions every year.
That is the attraction of the proposal to let kibbutz and
moshav farmers develop their farming land for housing. Since
they are so powerful and well-connected, they may be able to
push it through. If they do, it will introduce massive
amounts of land into the development market and out of the
control of the ILA. Though the farmers will reap an unearned
and probably undeserved bonanza, we should not ignore the
fact that the long-term effects that can be expected from
this are lower prices and better housing for all.
