Dei'ah veDibur - Information & Insight

A Window into the Chareidi World

22 Av 5760 - August 23, 2000 | Mordecai Plaut, director Published Weekly








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Opinion & Comment
Privatize Israel's Lands

Surprising as it may seem, the shortest way to reducing the price of housing in Israel may be to release farming land to the kibbutzim and moshavim for development. That would take control away from the Israel Lands Authority and allow the free market to assert the expertise it has demonstrated in allocating resources over the last few generations.

A number of proposals have been put on the table. Government subsidized rental housing was suggested and, when he was effective Minister of Housing, Rabbi Meir Porush tried to implement it. It did not get very far and it is not likely to in the foreseeable future. The provision of rental housing means that someone -- either private investors or the government -- must invest the huge sums necessary to build the housing. Investors will insist on a reasonable return and in this age of fiscal responsibility so will the government. This would mean rentals that are so high that no one could afford them: even cheap apartments costing $100,000 (such as those available in new areas like Kiryat Sefer and Beit Shemesh) must return at least $8,000 a year after expenses. Moreover, planners are unlikely to agree to such a large diversion of capital to such an "old economy" use instead of the much more productive options that are available elsewhere.

A newer proposal is to allow the credit costs of the mortgage on apartments as a deduction against income for tax purposes. This is a practice followed in the U.S. as well as some European countries. Of course this would only help those who pay income tax, and close to half of those working do not.

These proposals and others try to address specific problem areas, but they do not even claim to reach the root of the problem, which is not unique to the chareidi community. In comparison to other parts of the world, the Israeli housing market suffers from high prices, small apartments, lower housing quality and often not enough units built. According to a recent article in Globes by Professor Zvi Eckstein and Menahem Perlman, this is exactly what we should expect from a system that is controlled by a government monopoly such as the Israel Lands Authority (ILA - Minhal Mekarke'ei Yisrael).

There is ample experience, both in Israel and elsewhere such as in the formerly-Communist countries, that a state will not manage public resources in a way that will maximize public welfare overall. Eckstein and Perlman argue that this is clearly true in the case of the land available for development in the State of Israel.

When Netanyahu took over four years ago, there was a lot of talk about releasing vast tracts of public lands for development. It was the conviction of Netanyahu, who has economic expertise, that this was the sensible thing to do. But there was no action.

Force of habit is strong, and the bureaucracy is too. It is not easy to dismantle a powerful government office that controls hundreds of millions every year.

That is the attraction of the proposal to let kibbutz and moshav farmers develop their farming land for housing. Since they are so powerful and well-connected, they may be able to push it through. If they do, it will introduce massive amounts of land into the development market and out of the control of the ILA. Though the farmers will reap an unearned and probably undeserved bonanza, we should not ignore the fact that the long-term effects that can be expected from this are lower prices and better housing for all.

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