Despite a projected increase in housing starts to 80,000 by 2025, a study by Sani Ziv from the Aharon Institute reveals that planning errors, particularly in location and transportation, have prevented a reduction in housing prices in Israel. The report indicates that building only at the rate of household growth will not lower prices but will stabilize the existing shortage. Prices in cities like Herzliya and Tel Aviv are not expected to drop, despite increased supply. Banks play a crucial role in preventing price reductions by tying project financing to minimum sale prices. Developers, to avoid losses, prefer to offer financial incentives rather than officially lower prices. The report also critiques the notion that price increases are due to a housing shortage, highlighting the significant impact of low interest rates that boosted demand. Regulators are seeking to change these banking practices to allow for greater price flexibility.
