Study: Cost of Living Outstrips Income in Israel

The income of average Israelis is not keeping up with the cost of living, according to a new study by The Taub Center for Social Policy Studies, released on Monday.

The data show that wages have increased only in pace with inflation since 2000, meaning that monthly earnings buy less today than they did then. However, housing and rental prices rose sharply since 2007 at a rate faster than the Consumer Price Index and food prices have also been on the rise.

“The shortage of affordable, long-term housing in the rental market allows housing prices to move even further away from the expected level of prices in a balanced market,” the report said.

In 2005 food prices in Israel were below average for most food groups among the OECD countries, whereas by 2011 the situation had reversed for all groups except fruit and vegetables, with food prices rising higher than the OECD average. To add to the difficulty for Israeli shopper, the most consumed food categories were the ones with the smallest amount of imported products from overseas, which contributed to an increase in prices.

Researchers confirmed in detail that the chronic acute shortage in affordable housing continues to be a major hardship, and suggested that expanded rental options could alleviate the problem.

The rises in prices and rents outstripped the Consumer Price Index, especially after 2008, but, contrary to theoretical expectations, the rises were at different rates. Whereas home prices shot up by a nominal 60% over the period, rents rose by a little over 40%, that is, not a great more than the rise in the Consumer Price Index.

The rise in housing prices led to a rise in the proportion of young adults who remained living in their parents’ homes. The number of individuals aged 35-44 who do not own a home rose to 36 percent compared with 30 percent in 2000, while for those under 35 this proportion shot up by more than 10 percent to 60 percent.

“The lack of a market in which long-term rental is a realistic and widespread option allows prices to diverge from what would otherwise be equilibrium prices. This helps demonstrate the importance of creating a rental market in Israel,” the report states.