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The Day After Project Overview of Construction and Housing – Civil Services and Government Policy

עודכן: 13 באוג׳

Dr. Eyal Bar-Haim 

 

Supervision: Yoni Ben Bassat 

Chief editor: Amit Ben-Tzur 

Hebrew editing: Daphna Lev 

English translation: Dr. Carly Golodets 

Design: Adi Ramot 

December 2023 


The project was written in response to the revealed weaknesses of the government and public services during the October 7 War. 

 

 

From a social perspective, the Ministry of Construction and Housing has two main roles: 1. Increasing the supply of homes in Israel to create conditions that enable the provision of housing solutions at a reasonable price for the entire population; 2. Supporting disadvantaged demographic groups that are unable to afford housing in the free market (State Comptroller, 2015). To achieve the first goal, the Ministry plans, develops, and initiates marketing of land aimed at residential and commercial development. The Ministry tries to achieve the second goal through public (social) housing, housing benefits and mortgage subsidies. Examination of the housing market in Israel shows that these goals are far from reach. 



What Is the State of the Housing Market in Israel? 

  1. Housing prices in Israel have risen dramatically since 2008 

After a gradual decrease in housing prices in salary terms since the 1990s, the cost of the average home in the late 2000s was approximately 91 average monthly salaries. From the end of the 2000s, there was a dramatic increase in housing prices which continued throughout the 2010s. Housing prices in this decade were significantly higher than in the 1990s. After a slight decrease during the COVID-19 period, the increasing trend returned, and in 2022 the average cost of a home stood at about 170 average monthly salaries (Figure 1). 



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  1. In an international comparison, the housing price increase in Israel was particularly high


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  2. The number of people waiting for public housing more than tripled between 2007 and 2021 

    Due to the high housing prices, many cannot allow themselves to purchase or even rent a home on the private market, and many households are eligible for public housing due to their socioeconomic status. In recent decades, thousands of people eligible for public housing have been waiting for a home (Glass, 2014), and their numbers are constantly increasing (Figure 3). Whereas there were 1,660 eligible people in 2007, their number rose to 5,600 in 2021. In other words, the number of eligible people has more than tripled. 


    איור

     

The Two Main Problems 

Under-budgeting of the Ministry of Construction and Housing 

Since 2004, the budget of the Ministry of Construction and Housing has decreased drastically. Whereas in 2001 the Ministry’s budget comprised approximately 1.8% of GDP, since 2010 it comprises just 0.6% of GDP, which as of 2022, is equal to approximately 9.3 billion ILS (Figure 4). 



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Our analysis, based on an assessment of the disparity in civil expenditure between Israel and the OECD average, shows that the Ministry of Construction and Housing lacks approximately 4.2 billion ILS per year (Figure 5). However, this sum is significantly lower than the investment made in the OECD in the field of housing, expressing non-optimal priorities in the state budget


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What needs to be done? 

The budget of the Ministry of Construction and Housing needs to be increased to close the gap with the OECD countries. 

Under-budgeting of public housing 

As mentioned, the budget of the Ministry of Construction and Housing for 2022 stood at. approximately 9.3 billion ILS1. Of this, over 400 million ILS have been allocated to maintenance of existing public housing. Another approximately 317 million ILS have been allocated to expanding public housing2. This expansion is performed mainly by the Public Housing Foundation, which obtains funds from the sale of homes to the tenants living in them. While this solution enables the purchase of new homes and provides upward mobility for public housing tenants, it does not increase the number of homes for those eligible. In fact, for each purchase of a home for public housing, four existing homes have been sold (Knesset Research and Information Center, 2022). In other words, the supply of homes in public housing is currently still in decline. Furthermore, 2,245 million ILS from the ministry’s budget has been allocated to rental assistance for those eligible (Ministry of Construction and Housing, 2023). This solution, preferred by the Ministry of Finance, is a problematic solution: the assistance is not compatible with rental market costs and it may even contribute to increasing costs in this market (Hoffman-Dishon and Connor Atias, 2023). 

While most of the OECD countries offer public housing to those who cannot find a housing solution in the private market, this opportunity is very limited in Israel. As of 2020, Israel is positioned at the bottom of the list with only 2% of the economy’s homes being used for public housing (Figure 6). To reach the OECD average, Israel must increase the number of homes in public housing by approximately 160,000. 



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What needs to be done? 

  1. Increase the supply of homes allocated to public housing through one of the three alternatives presented below (Figure 7). 



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  1. Limited alternative – intended to address the problem of supply to those eligible. According to the analysis by the Knesset Research and Information Center (2022), there is a need for 8,000 extra homes. Based on an estimate of 1.81 million ILS per home, on average3, this will be a one-off cost of 14.5 billion ILS or 1.45 billion ILS annually over ten years. 

  1. Intermediate alternative – intended to provide public housing to households that are currently not eligible for such housing. This solution is intended to bring the number of homes in public housing up to the OECD average, in other words, a situation in which 7.9% of homes are allocated to public housing. In Israel, this means an additional 106,000 homes, or spread over a decade, an additional 10,600 homes per year, and requires a budget supplement of approximately 19.25 billion ILS per year. 

  1. Expansion alternative – intended to affect the entire housing market and also reduce housing prices in the free market by providing solutions to the increasing demand for housing (Swirski and Hoffman-Dishon, 2017). According to the Adva Center researchers, construction of approximately 400,000 homes over a period of 10 years will generate a fair housing market. Such a process involves a budget supplement of approximately 73 billion ILS per year4. 

 

  1. Promote cooperative housing aimed at reducing the effect of the housing market on the standard of living of demographic groups ineligible for public housing, mainly those in the middle class. This solution requires allocation of land intended for public buildings, an institutional funding mechanism, and support from the local authorities. The role of the Ministry of Construction and Housing in this solution is in pooling and leadership; the budget supplement required for the Ministry is marginal (Solel, 2023). 


References 

  • Ministry of Finance (2011) Proposal for fiscal years 2011–2012. [Hebrew] 

 


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