Israel faces a major housing crisis, the Bank of Israel has warned, citing soaring home prices and a correspondingly increased risk of widespread default, Media Line reported.
Between 2008 and 2012, the average price of a home went up by 54%, outpacing average income, which rose by only 20%. The situation has placed an estimated 20% of borrowers in Israel into danger of default, more than in Europe and the United States
The report, written by two economists in the Bank of Israel’s Research Department, blames the rise in housing prices on several factors: A chronic shortage of land on which to build and prices kept high artificially by non-residents who buy apartments, especially in Yerushalayim. They pay exorbitant prices, and the apartments are only used a few weeks out of the year for vacations.
Experts say that about 40% of apartments in Yerushalayim are owned by wealthy American and French Jews. The city has been weighing a proposal to double property taxes for apartments owned by non-residents to discourage the practice.
In Israel, unemployment remains low at around 6%. A 2012 law limits the amount of the mortgage to 75% of the purchase price. In reality, it’s usually closer to 55% of the price, since parents and relatives often help young couples make the down payment.
Whereas in the U.S., fewer than two-thirds of Americans own their own home, in Israel, where it is traditionally deemed imperative, almost three-quarters do. A large percentage of the owners are young couples who, if living in the U.S., would rent instead of buying. But in Israel, the rental market is limited and rental rates are prohibitively high.