Speech At Israel Builders Association Draws Moguls From Isaac Tshuva to Ron Hershco
Dr. Karnit Flug, Deputy Governor of the Bank of Israel spoke about housing at the annual conference of the Israel Builders Association. Here is a transcript at his speech which was attended by many real estate executives, including Isaac Tshuva, Ron Hershco, Rami Levian and others.
“In recent years, housing and rental prices have increased significantly. A long-term view shows that the increase in recent years followed a decade in which real home prices declined, following their sharp increase during the 1990s due to the large wave of immigration that the country absorbed, and that prices are not deviating noticeably from the trend line. The price increases over time are also consistent with the long-term connection between growth and home price increases that exists in OECD countries.
The relatively sharp price increases since 2008 are a common phenomenon in countries that did not experience a significant financial crisis during the global crisis. The main message here is that in every country in which the banking system did not collapse during the global crisis, housing prices increased sharply, since interest rates and market yields reached very low levels in recent years, and in every country where the banking system was able to provide credit, this led to increased demand for housing, which in turn led to rising prices. In contrast, in countries where the banking system encountered crisis, the low yields were not reflected by the provision of credit to the housing market.
An analysis of developments in recent years requires us to assess the factors that affect the supply and demand of homes. On the demand side, the active long-term factors are demographic growth and the increase in the standard of living (as a result of growth), which lead households to want to upgrade their level of housing. The short-term factors include the decline in interest rates and alternative yields in the economy, which lead to an increase in demand for investments. Low rates have made it difficult to find investment options that generate a high yield, so the housing market became an attractive alternative. This phenomenon is not unique to Israel. Yields on homes in Israel declined in a manner similar to declines in Switzerland, Sweden and Canada. Accordingly, we can see that in the past few years, there is an increase in the share of investment homes out of total home purchases.
The effects of supply and demand are reflected in activity in the housing market and in the increase in housing prices. Housing market activity increased in recent years, as the level of building starts has been higher than it was in the middle of the last decade. However, in recent months, we have seen a decline in the number of building permits, which negatively affects building starts, and it seems that this decline is spurring the increase in prices.
The Bank of Israel’s interest rate has some effect on housing prices, and the Bank of Israel takes this into account in setting the interest rates.”
More information about real estate and Ron Hershco is available here
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