Why Yair Lapid’s housing plan won’t actually create affordable housing

Jun 6th, 2013 | By | Category: Lead Story

The new finance minister wants to flood the market with rental units, but his ideas are largely impractical and their potential impact on actual housing prices is unclear.

Late last month, Finance Minister Yair Lapid made a dramatic announcement: Israel’s government, he said, would encourage construction of some 150,000 long-term rental apartments over the next decade. “We have a national emergency,” he explained, “which threatens an entire generation of young people, who fear they will never have an apartment.”

The announcement came after the first meeting of the “housing cabinet,” a ministerial task force chaired by Lapid himself. This week, that panel voted to approve a “national housing plan,” a lengthy document put together by government officials that will institute far-reaching changes in Israel’s housing market.

After moving quickly to draft a national budget and conscript the ultra-Orthodox, Lapid, a former newspaper columnist and political novice, is now leading a hasty attempt to lower the cost of housing in Israel, following the previous government’s failure to do so. However, many of the proposals contained in his plan will be difficult to implement and its potential impact on housing prices is unclear.

The Big Idea at the center of the plan is “rental housing.” Lapid envisions a new kind of neighborhood where everyone rents their apartments under multi-year contracts – not from individual landlords but from institutional investors, such as banks and insurance companies. Under his plan, enormous rental-apartment complexes of this kind would be built on the outskirts of Israel’s major cities and towns, on land currently used as parks and farmland.

Around twenty percent of the apartments in these new neighborhoods would be rent-controlled units. Lapid, in his trademark populist style, put it this way: “a policeman would live next to the people he protects, a teacher next to his students.” He deemed this a “nice social element.”

While the exact terms of the proposed rent-control arrangement are still vague (significantly, Lapid avoids using the term “affordable housing” in his plan; more on that below), the plan does guarantee sweeping tax exemptions and “adequate returns” to the financial institutions that would build and operate the projects. It even suggests that oversight over the projects be outsourced, rather than performed by government regulators. (Still, corporate sources, in off-the-record statements to the press, called the project an “insufficiently attractive” investment.)

Lapid’s plan would bolster the controversial “National Housing Committees” (known in Hebrew as vadalim), a system of fast-track planning committees created under Netanyahu’s previous government. Deeply unpopular with the public, the vadalim were created in order to bypass Israel’s regular planning system, thus allowing developers to skirt many of its checks on development. To a large extent, these checks exist in order to protect parks and farmland from real-estate pressures.

The plan would also contradict the country’s official national planning document – National Outline Plan 35 – which is largely designed to preserve those same green spaces. However, government planners, apparently working in coordination with Lapid and Netanyahu, are quietly putting into place unprecedented changes to NOP 35 that would scale back most of those statutory protections as well (many of which were created after exhausting campaigns waged by green groups), with little research into the consequences of doing so and without facilitating public debate on the matter.

By setting his sights on green areas, Lapid is setting himself up for a messy clash with Israel’s powerful environmental movement. Building 150,000 new apartments means paving over an area roughly 1.5 times the size of the city of Haifa. The environmental organizations, which perceive their role in defending open spaces from development as an almost sacred mission, will move heaven and earth to prevent that from happening.

But the plan’s most glaring fault lies in its refusal to employ the primary tool used to control housing prices in countries around the world: an affordable housing program.

Affordable housing programs (which are designed to provide housing to middle-class people at below-market rates) are often used by large cities to prevent neighborhoods from becoming exclusively inhabited by the rich. In Israel, several cities (including Tel Aviv and Jerusalem) have attempted to create such programs, but their efforts were blocked by the government, which claimed that city governments lacked the legal authority to do so. Meanwhile, a bill drafted by the Justice Ministry that would have explicitly granted cities this power was simply ignored by the cabinet during Netanyahu’s previous term. Lapis’s plan contains no reference to this absurd situation.

On public housing (state-built or subsidized housing for low-income people), Lapid’s approach has been inconsistent. Israel has not built any new public housing units in a generation, as successive governments have preferred to distribute limited rental subsidies to low-income families. However, as poverty rates have risen, renewed calls have been made for the government to renew its once-expansive public housing program. Initially, Lapid reportedly sought to repeal Israel’s progressive public housing law (passed by the Knesset in 1998, but never fully implemented), but he later backtracked. This week he said that 5% of the 150,000 rental units built under his plan would become public housing.

While his plan does go further than any of Netanyahu’s ideas to date, Lapid’s policies are still largely constrained by the same neoliberal, pro-market ideology that prevented the previous government from having any real effect on the housing market. Rent control is a good start – provided it actually ensures affordable rates for middle-class tenants – as is renewed construction of public housing. But the cost of most of the apartments (some 112,500 units) built under Lapid’s plan would still be determined by the market, with no mechanism to ensure their affordability. (That’s assuming that the plan eventually gets implemented, partially or in full – far from a certainty, considering the many obstacles to its passage.) 

For the moment, the plan appears to enjoy wall-to-wall support within Netanyahu’s coalition (including, apparently, from the prime minister). With any luck, the Knesset and NGOs like the Coalition for Affordable Housing in Israel will manage to pull it in a more progressive direction, as the details are hashed out over the next few months. In any case, after spending several years standing aside and watching the problem grow, the Israeli government is finally mobilizing for some sort of action in the housing market. That, if nothing else, is at least a step in the right direction.

Originally published at +972.

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