Israel Land Market Problems

Israel Land Market Problems

Israel land marketing and housing problem in Israel
(New research: April, 2013)

For years, IEP has been following the problems in Israel’s land-market, reflected in high priced apartments (housing component weight in household spending amounts to 25% on average).

A study conducted for IEP by Applied Economics Ltd. ("Applied") in late 2008 predicted the real estate crisis and described a constant reality in which The Israeli Lands Administration has monopoly status in the area of land-marketing and regularly markets a smaller amount of lands than the market demand and needs. "Applied" also managed to estimate the cumulative damage to Israel's housing consumers from this monopoly.

Meanwhile, the Knesset legislated a new Land Reform Law and established the Israel Lands Authority (In this document still referred to as The Israeli Lands Administration).

The 2013 research (also conducted by "Applied"), showed that the Land Reform Law did not produce the desired outcome. The 2013 research confirms IEP prediction which stated that as long as lands will be held by a monopoly, there will be no real significant improvement in the housing market. In the absence of structural measures that create competition in the marketing of land - prices will continue to rise.

Based on the 2008 research findings and on new findings in the current 2013 research, IEP suggests an outline for a solution:

o   Hold a tender to select “management companies” – to market any quantity of land that The Israeli Lands Administration was set to market - and yet not marketed by a specified date each year (starting 2014). Experience shows that there are tens of thousands of acres of such land each year.

o   Terms of the agreements with such “management companies” will be a transcript of the norms applicable to agreements with The Israeli Lands Administration. Meaning, State of Israel applicable norms will not be violated.

o   Starting 2014, plots of land dedicated to marketing the same year shall be specified. Each year, 60,000 units shall be marketed according to demand areas.

o   Land marketing will be done by a parameter of "occupant price" only.

o   Management companies’ fee will not be peddled as a percentage of the value of the land but a fixed amount (Flat Fee).

The above will create a market of land for housing. Experience shows that every year there are tens of thousands of lands for housing construction, not being marketed, even though such lands were designated for marketing by the government. Following IEP’s plan these lands will be sold either by The Israeli Land Administration or by competing companies (the management companies) where Israeli Land Administration does not manage to sell what is prescribed for it.

 

Executive Summary

Applied Research