Prof. Nathan Sussman Head of Research Dept.

Bank of Israel

Housing costs in Israel – new Insights

Source: CBS and the Bank of Israel 2

*Owned housing index from the consumers price index

60

70

80

90

100

110

120

130

House price index

divided by nominal

GDP per capita (100 = 1998)

Rental price index

divided by nominal

GDP per capita * (

100 = 1998)

Housing costs in Israel increased significantly in per capita

terms but are lower than in the 1990’s. Rents have declined

3

Housing prices rose much more than rent prices; Tel Aviv leads the rise in both and the variance between areas increased

Tel Aviv

Source: CBS and the Bank of Israel

60

70

80

90

100

110

120

130

140

150

160

The second Lebanon war?

Areas which rose

significantly:

Tel-Aviv ,Gush

Dan , the Sharon ,

the

Center,Jerusalem

60

70

80

90

100

110

120

130

140

150

160

The second Lebanon war?

Tel Aviv

Housing price index divided by nominal GDP per

capita (3.5-4 bdms. apartments)

(1998=100 )

Rental price index divided by nominal GDP per

capita (3.5-4 bdms apartments)

(1998=100 )

International comparison

5

From a long term perspective, the rise in housing prices in Israel is moderate compared to small developed economies*

International comparison- Housing price index divided by nominal GDP per capita

(1990=100)

*Advanced, small, open, developed economies with independent currencies and which didn’t undergo a crisis following 2008

Source: CBS , the Bank of Israel, Dallas fed and the countries individual statistical offices

60

80

100

120

140

160

180

200

Australia Israel Norway New Zealand Sweden Switzerland Canada

Israel

6

Since 2008 housing prices have risen in all small developed economies*; the rise in Israel is more significant

International comparison- housing price index divided by nominal GDP per capita

(2008=100)

Israel

*Advanced, small, open, developed economies with independent currencies and which didn’t undergo a crisis following 2008

Source: CBS , the Bank of Israel, Dallas fed and the countries individual statistical offices

60

80

100

120

140

160

180

Australia Israel Norway New Zealand Sweden Switzerland Canada

Demographics

8

“Baby boom’s” in the 50’s and 70’s and immigration from the former Soviet Union explain recent rise in share of 30-44 age group

in Israel

Source: UN

5%

7%

9%

11%

13%

15%

17%

19%

21%

23%

25%

0-4 25-29 30-44

Share of 0-4, 25-29 & 30-44 age

groups in Israel’s population

1950-2015 immigration from

former Soviet Union

9

Housing prices are correlated with the share of the 30-44 age

group; rental prices are correlated with the share of the 25-29 age group*

*following the significant immigration from the Soviet Union

**since 2009 the population data is according to the new CBS census

Share of 25-29 age group in population,

rental price index divided by nominal GDP per capita

0.4

0.5

0.6

0.7

0.8

0.9

1

1.1

1.2

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

2020

forecast

Rental price index

divided by nominal

GDP per capita

(right axis)

(1 =1998)

Share of 25-29

age group in

population (left

axis)

0

0.2

0.4

0.6

0.8

1

1.2

1.4

17.5%

18.0%

18.5%

19.0%

19.5%

20.0%

20.5%

21.0%

2020

Forecast

Immigration

from former

Soviet Union

Housing price index

divided bnominal y

GDP per capita

(right axis)

(1 =1998)

Share of 30-44

age group in

population (left

axis)

Share of 30-44 age group in population,

Housing price index divided by nominal GDP per capita

Source: CBS and the Bank of Israel

Immigration

from former

Soviet Union

10

The rise in the share of 30-44 age group in Tel Aviv is consistent with the sharp rise in Tel-Aviv’s housing prices

*since 2009 the population data is according to the new CBS census

Source: CBS and the Bank of Israel

14%

16%

18%

20%

22%

24%

26%

28%

30%

Tel Aviv Qrayot-Haifa Jerusalem Haifa Sharon North Center South Gush Dan

Tel Aviv

Share of 30-44 age group in

population, according to areas,

1996-2015

60

80

100

120

140

1601998

2001

2004

2007

2010

2013

2016

Housing price index

divided by nominal GDP

per capita (3.5-4 bdms.

apartments) (1998=100 )

11 הלשכה המרכזית לסטטיסטיקה ועיבודי בנק ישראל: מקור

Share of 25-29 age group is highest in Tel Aviv; recently Tel Aviv has become less affordable for renters

*since 2009 the population data is according to the new CBS census

2%

4%

6%

8%

10%

12%

14%

Tel Aviv Qrayot-Haifa Jerusalem Haifa Sharon North Center South Gush Dan

Sharon

Tel Aviv

Share of 25-29 age group in

population, according to areas,

1998-2015

Source: CBS and the Bank of Israel

12

In contrast to small open economies*, the share of 30-44 age group in Israel has increased; this is consistent with the higher rise

in housing prices in Israel since 2008 International comparison- Share of 30-44 age group in population

1990-2015

*Advanced, small, open, developed economies with independent currencies and which didn’t undergo a

crisis following 2008

Source: CBS, the Bank of Israel , UN and OECD

18%

19%

20%

21%

22%

23%

24%

25%

26%

Australia Israel Norway New-Zealand Sweden Switzerland Canada

Israel

60

80

100

120

140

160

180 International comparison-

housing price index

divided by nominal GDP

per capita

(2008=100)

Appendix: many small developed economies* experienced a “baby boom” during the 90’s; this demographic change can

cause a demand shock to housing in the coming years

13

4%

6%

8%

10%

12%

14%

16%

International comparison- Share of 0-4 age group in population

1950-2015

Australia Israel Norway New-Zealand Sweden Switzerland Canada

*Advanced, small, open, developed economies with independent currencies and which didn’t undergo a crisis following 2008

Source: UN

Israel`s mini

“baby boom”

The Bank of Israel’s Recommendations

Bank of Israel’s recommendations for effective housing market policy

Creating a large planned supply over time, in areas of high

demand

increasing congestion in cities and areas of high demand

• Investment in the necessary infrastructure, in particular mass transit

systems

• Urban renewal: prioritizing “evacuation & building” plans over

Tama 38*

• Improving the incentive packages of local authorities (increasing the

volume of housing construction and supporting infrastructure in

their area)

15

* Plans which include renovating, strengthening and adding 1-2 floors to existing buildings

Bank of Israel’s recommendations for effective housing market policy

Improving the planning and pre-construction process: shortening the required time from the initial design stage to the start of construction

• shortening the planning process without lowering quality

• Increase the synchronization between construction plans and infrastructure development

• Adjusting the housing mix to demographic changes (age structure, social norms)

Optimization of construction: prioritizing the integration of foreign construction companies owning advanced technologies over importing foreign workers

Preferring long-term considerations over short-term considerations : measures must be taken to maintain appropriate rate of construction starts in high demand areas, over time

16

Thank You