How to lower apartment prices?
Prices are currently frozen with a downward trend. The Central Bureau of Statistics' apartment price index indicates a minimal decrease, but some argue that the actual decline is more significant. Meanwhile, some wonder how prices can be lowered proactively. What can the state and municipalities do about it, and how can the apartment production chain be addressed to reach a situation where more households can afford to purchase? Industry leaders provide the answers.
"Dramatic shortening of bureaucracy"
Roni Brik, President of the Israel Builders Association: "When talking about practical steps to lower housing prices, one must start with the fact that there is no real practical plan here from the state for this critical area. The solution to the crisis does not lie in slogans, but in taking bold steps to increase supply. We have reached a shameful record of 12 years of bureaucracy for an apartment on average and 39 months of construction. The first and most important tool required is a dramatic shortening of bureaucracy. Today, from the moment of purchasing the land until receiving a building permit, long years pass, which makes the project more expensive by tens of percent due to heavy financing costs. Unifying licensing procedures and full digitization will allow us to get on the ground faster. The second tool is focused treatment of the shortage of working hands. Without a significant increase in quotas for foreign workers, a full transition to bringing them directly without the involvement of foreign countries, alongside the adoption of industrialized construction technologies, the pace of construction will continue to lag behind the needs of the population. In addition, the government must reduce the tax imposed on the purchase of apartments and on inputs. Today, almost half of the apartment price flows into the state treasury through taxes and fees. Lowering taxation will be rolled over directly to the consumer and will lower the final price."
"Reduce regulatory uncertainty"
Igal Damri, owner and CEO of Y.H. Damri: "The price of an apartment in Israel is not the result of one clause and certainly not of the developer's decision alone. It is a long chain of costs, starting with the price of the land, continuing with taxation, betterment levies, fees, development costs, regulatory requirements, standards, consultants, financing, raw materials and execution costs, and in recent years also a severe shortage of manpower in the industry. Whoever really wants to lower housing prices needs to treat the root of the problem and not just the price list. The state can and should significantly increase the supply of land in areas of demand, shorten planning and licensing procedures, reduce regulatory uncertainty, and re-examine the scope of taxes and costs it imposes on every new apartment. Local authorities also have a central role, through reducing barriers, re-examining levies and development costs, and giving priority to projects that increase the supply of apartments, especially in urban renewal and in areas of demand. In the world, it has already been understood that the solution to the housing crisis is not artificial intervention in the final price, but the creation of conditions that allow building more, faster, and with higher certainty. In various countries, moves have been made to accelerate licensing, government investment in infrastructure, incentivizing local authorities to increase housing supply, and reducing excessive regulation. The way to cheaper apartments goes through fewer barriers, more certainty, and more supply, not slogans."
"Certainty regarding betterment levies"
Ronit Ashed-Levy, CEO of Africa Israel: "Housing prices are influenced by a long line of components - from the price of the land, through taxation, levies, and development costs to the duration of planning and licensing procedures. In order to bring about a significant reduction, a systemic view and cooperation between the state, local authorities, and developers are required. One of the most important steps is creating certainty regarding betterment levies, especially in urban renewal projects, so that costs are clear and predictable already at the planning stage. In addition, there is room to incentivize authorities to promote licensing procedures, building permits, Form 4, and completion certificates at a faster pace, alongside investment in infrastructure and increasing the supply of land available for construction. These steps can contribute to a more efficient market, reduce costs, and help in increasing the supply of apartments over time."
"Reducing taxes and subsidizing infrastructure"
Eli Avisarror, Chairman of the Negev Contractors Organization and Acting President of the Israel Builders Association: "The public is fed the illusion that contractors can simply 'cut prices'. The current promotions are a temporary plaster for a deep crisis, and without government intervention, prices will only rise. A contractor cannot sell below the cost of production; the public must understand that the price of the apartment is actually determined by the state. The most dramatic component is the price of the land and taxation, which constitutes about 56% of the apartment price. The Israel Land Authority acts as a monopoly that markets land using the 'highest bidder' method, and together with VAT taxation policy, purchase tax, and development levies, the state takes about 60% of the apartment price from the consumer. The government and municipalities can make the market cheaper tomorrow morning if they reduce taxes and subsidize infrastructure. This is done, for example, in Germany and the Netherlands, where authorities bear the costs of environmental development to lower the end price by tens of percent. To achieve a real reduction of 15%-20%, a reform is required on two emergency axes: first, a root solution to the manpower crisis, through bringing tens of thousands of foreign workers, which will shorten the duration of construction and cut the huge financing costs, while giving priority to contractors in the south. Second, a change in tax policy — one can give young people a VAT credit, as is customary in many countries, one can determine that VAT for housing will be, for example, 5% and not 18% — such a move alone will lead to a dramatic decrease in housing prices."
"Not magic - decisions"
Eyal Handler, Chairman of the Canaan Group: "Lowering apartment prices will not come only from interest rate cuts, it will come from a systemic change. Shortening licensing and planning processes, which today last for years and make every project more expensive before a single foundation is set, is the starting point. Alongside this, the state must stop using public land as a revenue lever and start using it as a social lever. Also, without a solution for manpower in the construction industry, through bringing in foreign workers within an orderly and safe framework, we will not be able to meet the required pace. The right policy does not require magic, it requires decisions. Reducing costs in the construction chain is the interest of everyone looking for an apartment, of every municipality that wants young residents, and of every government that understands that housing prices are not just an economic issue — they are a social issue."
"Create a mechanism that encourages the construction of apartments at accessible prices"
Yossi Avrahami, owner of the Yossi Avrahami Group: "One of the greatest absurdities in the local housing market is that a significant part of the apartment price is not related to the construction itself at all. Development levies, fees, regulatory requirements, and related costs accumulate to hundreds of thousands of shekels per apartment and are eventually rolled over to the buyer. In the world, it has already been understood that the state and local authorities are part of the solution and not just part of the collection mechanism. In various countries in Europe, models of uniform and transparent pricing of levies and infrastructure operate, which allow developers certainty and reduce costs. In Israel, a similar move is required: to set clear rules, reduce gaps between authorities, and create a mechanism that encourages the construction of apartments at accessible prices. When costs are reduced from the system, the price for the consumer can also be reduced."
"Reducing construction costs"
Gal Castel, CEO of Oron Nadlan: "In recent years, developer profitability has been eroded significantly, to the point that there are projects that do not get underway due to the fear that they will not be able to meet their financial obligations. The construction industry is dealing with a sharp rise in costs in almost every component - manpower, raw materials, suppliers, financing, and interest rates, alongside a slowdown in sales, which makes it difficult to promote new projects. When construction costs are so high, the developers' room for maneuver narrows. To allow for a price decrease, one must act first and foremost to reduce construction costs. A decrease in manpower, material, and financing costs will create greater flexibility for developers in pricing apartments. In addition, the continuation of the trend of lowering the interest rate may reduce financing costs and help in creating conditions that will allow for lowering prices. Another significant factor is shortening planning and licensing procedures. Today, developers sometimes wait for years to receive approvals. Creating a 'green track' for building permits and shortening bureaucracy will save time and significant costs, as in real estate, time is money. A combination of reducing costs, a lower interest rate, and streamlining licensing procedures is the most effective way to create conditions that will allow for price decreases for the public in the future."
"Expanding incentives for urban renewal"
Avishai Ben-Haim, CEO of Rothstein Nadlan: "In order to create a real price decrease, one must treat the entire chain of costs that makes up the final product. The price of the land is only part of the equation. Construction costs themselves have become more expensive in recent years following a shortage of manpower, a rise in wages in the industry, and the rising cost of raw materials, alongside high financing costs, consultants, fees, development levies, betterment levies, and regulatory requirements that are constantly expanding. In many cases, direct and indirect taxation and the costs imposed on developers and buyers reach hundreds of thousands of shekels for each apartment. In recent years, there has also been a significant increase in construction costs and costs related to projects. If the state and local authorities want to increase supply and lower prices, they must act simultaneously on several fronts: marketing land at reasonable prices, significantly shortening planning and licensing procedures, reducing levies and fees, creating regulatory certainty, and expanding incentives for urban renewal. In the world, there are models where authorities participate in infrastructure development costs or grant tax breaks to projects that increase supply, out of an understanding that increasing supply is the most effective way to curb price increases. There is no magic solution that will cut prices by tens of percent overnight, but a cross-sectional treatment of all cost components can lead to a reduction of a few percent to double digits in the final price and contribute to a more accessible housing market over time."
"Shortening bureaucracy processes in the country"
Yossi Pershkovsky, Chairman of Pershkovsky Investments and Real Estate: "First, one can make the workforce cheaper. The state imposes very high taxes on the import of foreign workers, and as soon as they lower the fees and taxes on bringing foreign workers, apartment prices will be cheaper. Second - shortening bureaucracy processes in the country. Once, getting a building permit would take half a year and today three years, which is reflected in heavier costs. Third - the main construction in the foreseeable future will be in urban renewal, but in practice, the authorities do not allow working continuously in populated areas, which causes many limitations in the work plan, something that makes costs more expensive."
"Reducing raw material costs"
Yishai Rot, CEO of Shoval Engineering: "There are many reasons for high prices. Regulation burdens developers with requirements, which makes costs more expensive due to the need to employ a fleet of consultants, the long schedules of planning committees, construction inputs that have risen significantly during the war, and raw material costs, the shortage of workers that caused a slowdown in construction, and of course, the high interest rate that weighed on developers. Experience teaches that any intervention in market forces in the form of tax experiments causes price increases, and therefore the government must focus on actions within its control: import agreements to lower raw material costs, easing bureaucracy in planning and licensing, simplifying procedures for importing workers, changing the tender method so that they are more suitable for reality, etc. One must deal with land speculation by the Israel Land Authority, which is the main factor for the delusional land prices. In addition, the government is expected to streamline the work of local committees so that they issue building permits in reasonable time frames, and act to lower import tax and VAT on all raw materials, which are also responsible for the rise in construction inputs."
"Accessible licensing and authorized for permit - steps in the right direction"
Afi Shkedi, Chairman and CEO of Afi Capital Nadlan: "Apartment prices will not go down through artificial discounts or sales promotions, but through real treatment of the factors that make the production of the apartment more expensive. The public sees the final price, but behind it stands a long chain of costs: land, taxation, levies, financing, consultants, regulation, and especially time. In recent years, time has become one of the most expensive components in the industry. A project that is delayed for months and even years due to planning and bureaucratic procedures absorbs heavy financing costs, especially in a period of high interest rates, and in the end, these costs are rolled over to the price the buyer pays. If the state and local authorities want to lower housing prices, they must significantly shorten planning and licensing procedures, reduce regulatory duplications, and create certainty. The moves promoted by the Planning Administration, such as accessible licensing and authorized for permit, are steps in the right direction, but not enough to create a substantial change in the pace of project realization. Alongside this, since most of the land is in the hands of the state, land policy also has a decisive influence on the final price. When land is marketed at high prices, it is difficult to expect a significant price decrease. There is no one magic solution; a combination of shortening schedules, increasing land supply, and reducing barriers can lead to a price decrease over time."
"Reward local authorities for adding housing units"
Mario Zuzel, CEO of Almogim: "When the state, local authorities, and various bodies along the way add levies, fees, requirements, and regulation, it is impossible to expect that the final price will remain unchanged. A significant part of the apartment price is not related to the construction itself at all. Along the way, taxes, levies, fees, and various payments accumulate that make every housing unit more expensive. When every factor in the system adds more costs and more requirements, the final result is a more expensive apartment. If the state wants to influence the price for the consumer, it is required to examine, alongside its revenues from taxation and collection, also the cumulative effect of those costs on housing prices. The most significant move the state can make is creating certainty. A developer can deal with high costs, but it is very difficult to deal with uncertainty that lasts for years. When a project is delayed for two, three, or four years beyond what was planned, financing costs skyrocket, risks increase, and the final price becomes more expensive accordingly. The one who pays in the end for the systemic inefficiency is the buyer. On the issue of housing prices, there is no 'bang and it's done' here, but if the state views housing as a national infrastructure and not just a source for collecting revenues, and if local authorities are rewarded for adding housing units instead of delaying them, it will be possible to create a real change."
"Using industrialized construction methods"
Adv. Raam Ratzon, CEO of Av-Gad: "The economic challenge lies not necessarily in the sale prices of new apartments, but in the entire chain of costs that undergoes examination and change. A significant component is financing costs. In the State of Israel, it has been clear for a long time that the interest rate environment is high and does not match the needs of the market. Lowering the interest rate will reduce financing costs, but will also make it easier for buyers taking mortgages to enter the market again and will set the wheels of real estate in motion. The interest rate reduction carried out by the Governor of the Bank of Israel in recent weeks is a small and too cautious step, and further reductions in the near future, if there are any, will have a more significant impact. Another significant saving can be obtained from using industrialized construction methods and using different claddings and lowering construction components. In addition, conducting tenders between suppliers for the purchase of concrete and iron and finishing items also leads to savings."
"Policy steps that will reduce barriers"
Ran Yanai, CEO and owner of the T.P. company: "When talking about lowering apartment prices, it is important to understand that the price of the apartment is the result of a long chain of components and not just the price the developer offers at the end. Land costs, taxation, development levies, financing costs, construction, and regulation – each of the factors directly affects the final price for the consumer. Therefore, even when there is a desire to create a decrease in prices, one cannot ignore the overall structure of costs in the market. If the state and local authorities want to really influence price levels, they need to act on the supply and cost side: by increasing the supply of land planned for construction, significantly shortening planning and permit times, reducing certain levies and taxes, and reducing regulatory uncertainty, which makes financing more expensive. Also, improving transport infrastructure that expands areas of demand can relieve pressure in the center and create a more correct distribution of the population. In the end, in the foreseeable future, the potential for a significant change in prices lies less in 'developer discounts' and more in policy steps that will increase supply, reduce barriers, and shorten the time it takes for an apartment to get from planning to the market."
"Create a stable, predictable, and more accessible market for buyers"
Arik Gilad, CEO of Development and Income-Producing Assets, Y.D. Barazani Group: "The price of the apartment is influenced by a long line of components that are mostly under the control of the state and local authorities - starting from the price of the land, through taxation, levies, and fees to the duration of planning and licensing procedures. When a project is delayed for years in the planning corridors, costs accumulate and are eventually rolled over to the final price paid by the buyer. If one wants to see a real change, one must move from a discourse that focuses on the final result to a discourse that deals with the cost factors themselves. Shortening planning procedures, reducing unnecessary regulation, creating planning certainty, and re-examining the scope of taxes and levies can influence much more than any point-based program intended to give one discount or another to buyers. In recent months, two encouraging moves can be identified, which may contribute to improving the business environment in the industry if they persist over time. The first is the beginning of the trend of lowering the interest rate, which gradually reduces financing costs both for developers and for apartment buyers. The second is the promotion of the self-licensing reform, which is intended to transfer some of the powers and responsibilities to architects and professionals on behalf of the developers, while reducing the direct involvement of the authorities in the process of issuing permits. If the reform is implemented fully and achieves its goal, it may significantly shorten the duration of licensing procedures and reduce one of the central friction points in the industry. The goal should be not only to make apartments cheaper, but also to prevent their continued price increase and create a stable, predictable, and more accessible market for buyers."
"Marketing land at reduced or subsidized prices"
Eli Rosenthal, CEO of the Contractors and Builders Organization of the Tel Aviv and Center District: "The two most significant factors in the apartment price are actually under the control of the state. The first is the price of the land, and the second is the taxation imposed on the housing industry. Since most of the land available for construction is owned by the state, it has a real ability to influence prices through marketing land at reduced or subsidized prices, similar to models that were operated within programs like 'Price for the Tenant'. Parallel to this, a reduction of the various taxation components, which are embodied in the apartment price, can create another significant influence. Today, land and taxes can together constitute between 40% and 60% of the apartment price. If the state chooses to reduce taxation despite the deficit, but for the benefit of the stability of the real estate industry and the return of demand, it will be possible to see a real decrease in apartment prices, without harming the quality of construction or the volume of supply."
"Create real certainty and binding schedules"
Claude Nachmias, owner of the Nachmias Group: "If there is one component that makes apartments more expensive in Israel - it is time. Every year that a project is stuck in planning and licensing procedures increases financing costs, exposure to price increases, and the developer's risk level, and all these are eventually rolled over to the apartment price. Many countries have already understood that the way to lower prices starts with shortening procedures, and in the UK and other countries in Europe, mechanisms have been introduced that allow for accelerating checks and approvals and creating fast tracks for projects that comply with approved planning. Also in Israel, the state understands the problem and acts through dedicated committees, planning reforms, and regulatory changes, but at this stage, their influence is not yet felt enough on the ground. To see a real change, one needs to create real certainty and binding schedules. When a project reaches the market faster, costs go down and the public benefits."
"Give incentives for affordable housing"
CPA Gilad Oren, CEO of Matzlawi Building Company: "Whoever wants to lower apartment prices in Israel cannot look only at the developer's price list. An apartment price is composed of a long chain of costs: land, taxation, betterment levies, fees, consultants, financing, regulation, licensing times, and execution costs. The state and local authorities can influence a large part of these components, mainly through shortening planning and licensing procedures, higher certainty for developers, reducing levies in places where they want to encourage construction, and faster release of land in areas of demand. In the world, one sees models where the state and authorities give incentives for affordable housing, shorten bureaucracy, and create collaborations with the private sector. In Israel, a real reduction in price will come only if we treat the total cost of the project and not just the developer's profit line. Otherwise, prices might move point-wise, but we will not see a real structural change."
"Shorten schedules"
Sagi Lanchner, CEO of Y.N.U.V. Construction and Development: "The real way to lower apartment prices is not in slogans, but in shortening bureaucracy and creating certainty. A developer cannot price an apartment correctly when licensing and planning procedures last for years, and every month of delay creates financing costs, linkages, and price increases. In the end, these costs reach the apartment price. If the state and authorities want to really influence prices, they need to shorten schedules, create planning certainty, and view urban renewal as a national interest. Fewer barriers and more partnership will lead to an increase in supply, and this is the real tool for lowering prices."
"Re-examining second apartment taxation"
Dror Ohav Zion, CEO and owner of Dara Real Estate Marketing: "The more the time between purchasing land or signing a demolition-construction agreement with tenants and the start of marketing and selling apartments in practice is reduced, the more financing costs, which are rolled over to the buyer and burden the final apartment price, will significantly decrease. In order to bring about a reduction in times and streamlining the system, one must treat the entire chain of costs and procedures that exists in housing projects, which includes the price of land, taxation, betterment levies, fees, development, financing, multiple consultants, manpower shortage, and lengthy licensing procedures. The state has many tools to influence the chain and bring about a significant price reduction for consumers, for example, shortening licensing procedures, increasing land supply, continuing 'Target Price' tenders alongside a free market, reducing purchase tax on land, and re-examining second apartment taxation. Also, one must encourage the assimilation of advanced construction technologies, import skilled manpower, and invest in training local workers."
"Creating a national standardization of requirements"
Yossi Valas, co-CEO of Margolin, Engineering and Consulting: "The price of the land, the taxation and levies imposed on the project, as well as the duration of time required to bring a project from the initiation stage to occupancy, are the three central factors influencing the apartment price in Israel. Therefore, any real discussion about lowering housing prices must include a re-examination of land, taxation, and levy policy. Another problem is the lack of uniformity in requirements between different local authorities and between the different planning institutions. A developer or planner, operating in several cities, is often required to deal with different and sometimes even contradictory requirements on similar issues, starting from the volume of documents required to the interpretation of regulations and standards. This lack of uniformity creates uncertainty, requires repeated rounds of corrections, and significantly lengthens the duration of planning and licensing. The solution is not only an increase in manpower in the planning and licensing committees, but also the creation of a broader national standardization of requirements, documents, procedures, and schedules. The more uniform, predictable, and efficient the process is, the more it will be possible to shorten the duration of projects, reduce uncertainty, and reduce costs that are eventually rolled over to the apartment price."
