Did you hear that they hit gold in Israel?
From 2007-2015, housing prices rose 114%.
During this same period, rents rose 49%.
Note that this includes the global economic crash of 2008-2009.
The Most Expensive Real Estate Market in the World (Relative to Income)
Economist Noam Gruber said that, “Israel is one of the most expensive real estate markets in the world in proportion to income.”
Between global low interest rates and a domestic political situation that makes building sufficient new homes difficult, Israel faces a national real estate crunch.
High Housing prices are a national crisis in Israel: today, it takes the equivalent of 148 average monthly salaries to buy a home in Israel. To give some idea of how high this is, the average is 76 in France and 66 in the US.
These high costs are cannibalizing Israel’s youth, who are unable to start their lives and often end up migrating abroad.
High housing costs are a political, social, and economic problem. In fact, Israel was paralyzed by national protests in 2011 against housing prices and general economic conditions.
A Tale of Two Lands
There is abundant cheap land, with access to cheap labor and materials for building, in which Israelis can live comfortably.
However, this land is not in Israel per se, though: it is not formally under the control of the Israeli Government.
The Israeli Military governs this land in the West Bank.
Many call this land in the West Bank, “the settlements”.
The settlements are also known by their biblical names, Judea and Samaria.
Settlements: Strategic, Political, and Economic Value
The West Bank settlements provide a strategic buffer against menacing neighbors. Most notably, the land is characterized by tactically valuble hill-tops.
Politically, the settlements create a voting bloc which politically leans to the Right. Naturally, the Israeli Left and the Western Liberal elite oppose the settlements, which manifested in their ultimately impotent UN Declaration 2334.
Economically, the settlements impose a huge drain on Israeli military resources, since they require more protection, being the true frontier of Israel. Despite this security burden, the settlements provide the best solution for new cheap housing and the economic drain on Israel.
Why Are Settlements so Much Cheaper?
During the more peaceful times of the early 1990’s, Israelis used to do their grocery shopping in Ramallah: it was much cheaper than shopping in Israel proper!
Because Settlements are not “Israel Proper”, they do not have the Israeli air-tight border controls and migration protocol. This means that Arabs can freely travel from their own Palestinan towns and cities to settlements.
The consequences of this are huge: it means that developers and builders in the settlements have easy and free access to cheap, local Arab contractors and laborers.
Arab Prosperity & “Apartheid”
Local Arabs benefit the most from settlement construction: they are the lowest-cost contractors in the region, and even ostensibly “native-Israeli” contractors always try to improve their margins by using as much Arab labor as possible.
With respect to material costs, Arabs can always undercut Israeli vendors, since they are not subject to the regulation and taxation that burden Israeli businesses.
The Bubble Must Deflate: Catch the Breeze
Housing costs in Israel-proper are both economically unsustainable and politically destabilizing.
The Israeli Right will continue to push for more settlement development to alleviate this problem.
This means more and more land in the West Bank will be approved for housing development.
How to Play This Game?
If an apartment in NYC went from $2 million to $1 million, a 50% price decline and absolutely calamitous loss for any investor or owner, would the average American family be able to afford it?
The answer is obvious.
Likewise, in Israel: the market is mature, saturated and looking exhausted and ready to correct. However, even if real estate prices were to crash in Tel Aviv, they are still too high for the average Israeli family, and eager foreign buyers, especially safe-haven investors, will keep prices from ever truly becoming affordable.
What, Then, Shall We Do?
The smart game is to harness the strategic, political, and economic forces that are pushing for Israel’s development of the West Bank: this means investing in land and developments beyond the Green Line.
Please see, “Frontier Israeli Development Opportunities” for more details.