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Treasury aims to strangle building in central Israel

By Guy Liberman and Raz Smolsky

Tags: Israel, Finance Ministry

The Finance Ministry plans to change Israel's demographic map, by aggressive means if it has to. The ministry explicitly directed other government offices not to help rezone lands for residential purposes in central Israel, from 2009 to 2012. It cannot be said that its fellow ministries intend to play ball, however.

The ministry's goal is to encourage people to move to the periphery, where population growth has been short of government targets. The targets were set forth in National Master Plan 35, which set "normative population goals" to boost Israel's outlying areas. Analysis of trends from 1995 to 2008 shows that the goals set forth in the plan have been fulfilled only in part.

Non-central towns have been losing large numbers of people to the crowded center, even though housing prices are much higher in the greater Tel Aviv area. Meanwhile, population growth in central Israel has been exploding: It has already reached 90% of Master Plan 35's target for 2020, the Finance Ministry explains.
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The written directive was sent to all the relevant government bodies, including the Israel Lands Administration, the Housing and Construction Ministry, the Industry and Trade Ministry, and the Interior Ministry. The finance officials plan to promote the idea, under which the ministries in question would eschew programs involving land rezoned for housing in central Israel, through the Economic Arrangements law for 2009.

Sources at the interior and housing ministries were infuriated by the Finance Ministry's proposal, however, noting that the treasury hadn't even consulted them in advance. The plan is doomed to fail, said a top source at the Interior Ministry yesterday, because it will spur inflation, which will cause the treasury to retreat.

Why inflation? Because if the treasury's plan is followed through, the Interior Ministry source said, the inventory of apartments in central Tel Aviv will stagnate but demand will continue.

"Prices will rise. I do believe that some people will choose to move to the periphery, but the numbers will be small. Even so, prices there will rise too. The upshot will be that the consumer price index rises, and when the treasury realizes that, it will pull back."

There are better ways to help the periphery, suggests Housing Ministry director-general Haim Poliakov. Mainly, the ministry suggests helping people buy housing there, increasing investment in infrastructure, and building an inventory of high-quality housing, mainly individual houses. "Experience teaches that when you try to sharply cut back growth in central Israel, it causes prices to soar," Poliakov warns.

Yossi Gordon, the general manager of the Contractors and Builders Association, shrugs that people won't be willing to leave central Israel. "The only outcome from the plan will be that prices rise in the center. It won't cause people to move to the periphery."

Prices in Tel Aviv and the center are already higher than elsewhere, he says, but people aren't moving beyond the region bordered by Hadera in the north and Yavne in the south. "The idea of halting land sales in central Israel, to spur people to leave, is insane," Gordon adds. People won't leave, they'll simply look for other solutions. Yes, the treasury is right to want to help the periphery, but that isn't the way. What is? He agrees that subsidizing apartments is best, and also suggests recognizing interest payments for tax purposes