One of the hot-button issues in Israeli politics is real estate and the apportioning of new lands for real estate projects. The Ministry of Housing and Construction is a highly sought after ministry with the party holding it with the ability to funnel funds to promoting land development for his or her constituency.  This means that finite assets are not allocated in the way that would be most capitalistically beneficially.

But more than that, Israel’s mortgage system is not one based on mortgage-backed securities.  This is in and of itself a double-edged sword, given the 2008 banking crisis in America which saw the value of these securities implode. In contrast, banks in Israel hawk mortgages exposing Israelis to variable rates that come back to haunt them when the CPI takes a turn for the worse or when the central bank needs to cool inflation.

In essence there’s very little on the side of the bears, who want prices to go down. A “wait and see” approach is not one conducive to owning a home here. Banks want rates to risebecause it guarantees the home loans on the balance sheet, and homeowners likely want to see the prices of their homes rising. 67% of Israelis live in self-owned homes.

So banks and homeowners don’t want to see prices go down. But what about contractors and land developers? They too don’t want prices to fall. Even though the price of the land itself has fallen, effectively, in real terms, by the time contractors get the permits sought, the price of the land has essentially gone up.  This has placed them in the ironic place of asking the government for guarantees given that land purchases are financed by debt which has become increasingly more expensive.

Lastly, you’d think the State itself would want prices to go down, but a huge amount of budgetary funding comes from land taxes and the sale of properties. This means that when push comes to shove, apart for renters – a dispersed group of people with little collective power, nobody in Israel really wants prices to go down.  As the figures testify they are going up…fast!