Housing Cabinet Passes VAT Exemption, Targeted Prices

YERUSHALAYIM -

Bill discriminates against chareidim

The Israeli Housing Cabinet passed on Monday two proposals to address the country’s desperate housing shortage — Minister of Finance Yair Lapid’s  zero value-added tax (VAT) for first-time homebuyers, and Minister of Housing Uri Ariel’s target price tenders, Globes reported.

The clauses discriminating against chareidim and Arabs, by making army service a criterion for eligibility, and which have generated outraged reactions, were retained.

Ariel proposed target pricing last year, but it was only propelled forward on Sunday when Prime Minister Binyamin Netanyahu gave it his backing. The target price plan will be submitted to the housing cabinet for approval in 20 days. The ministry says that apartment prices in target price tenders will be 20% below the market price.

The measures were approved with the stipulation there will be no “multiple discounts” (homebuyers of apartments in target price tenders cannot also get zero VAT).

A further restriction, buyers of new apartments in these tenders will not be allowed to sell them for five years.

At the meeting on Monday, Governor of the Bank of Israel Dr. Karnit Flug, one of numerous senior officials who opposed Lapid’s plan, outlined her reservations, which make clear this is no panacea: “The basic problem in housing is the supply. The increase in the supply, as the past two years have indicated, with an emphasis on high-demand areas, is going the right way. The principles of the target price plan will achieve the home prices target. It will help increase the supply of apartments, and will send a credible message to the public that the government is acting to lower prices, even at the cost of lost revenues.

“We welcome the intention to set up a team that will draw up the target price proposal, which will affect home prices. There are disadvantages. The first is that implementing the plan will increase demand for new apartments… There will be pressure on prices and in the absence of price controls, much of the benefit
will not reach homebuyers. Supervision is problematic.

“The strong extra demand will give some buyers an incentive to pay on the side, creating a black market in order to obtain the benefit.”

Flug concluded, “The eligibility criteria do not benefit the poor, and the higher prices that they will cause will make things harder for poor families. We’re talking about a permanent benefit. Because it requires legislation, even if it turns out in the future that the benefit is ineffective, political reality will not allow the cancellation of the benefit, just as today it is impossible to cancel exemptions, such as no VAT in Eilat. The measure has a large budget cost and the source of financing must be found.”

Nonetheless, in the apparent belief that he has solved the country’s housing problem, shortly before the housing cabinet convened, Netanyahu marked his next target: lowering food prices.

“We are taking a significant step today, in order to reduce the prices of apartments. We will set price caps for projects, and we will sell land to developers at lower prices, on condition that they commit to prices at which the apartments will be sold to citizens,” said Netanyahu.

The prime minister continued, “There are more steps that we intend to take in order to reduce the high-cost of living. I intend to intervene on food prices as well. We want competition, and lower prices. We want to reverse the trends in the housing market, and in the food market.”