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What started in mid-July as a minor protest—two dozen tents pitched in a posh section of Tel Aviv—has morphed into a full-blown citizen’s movement in Israel. The tent camps have spread to other choice avenues in Tel Aviv and cropped up in Jerusalem, Haifa, and Beersheba. More than 250,000 people filled the streets outside Israel’s Defense Ministry on Aug. 6 at a “Rally for Social Justice” replete with protest leaders and local rock stars.
At the heart of the movement is the anger of ordinary Israelis at the surging cost of housing. Prices have increased about 40 percent in the last three years, in part the result of Israel’s “very slow” planning and construction process, Bank of Israel Governor Stanley Fischer said on Aug. 1. They rose 13.7 percent in the 12 months through April-May, about triple the inflation rate, the Central Bureau of Statistics reported on July 15. Israel ranked fourth in the Knight Frank Global House Price Index for the first quarter of 2011, trailing only Hong Kong, India, and Taiwan.
Rents are jumping, too. “It is insane what landlords get away with charging in this country,” says Yifat Karlinsky, a pregnant mother of a 2-year-old boy, as she sits on a park bench near her tent, sweating in the August heat. “Tel Aviv has become a city only rich people can afford, and the lack of housing is driving prices up everywhere else.” Karlinsky, a 37-year-old grade school teacher, joined the protest after the rent on her south Tel Aviv apartment jumped 17 percent.
Why the fury over housing prices now? “In Israel demand [for housing] has often outstripped supply,” says HSBC (HBC) economist Jonathan Katz. “It’s been especially so the last few years, thanks to low interest rates making it easier to get housing loans and mortgages.” The economy has been robust—it should grow 4.8 percent this year, according to the Bank of Israel. The increased prosperity has made Israelis hunger for better homes, while at the same time the gulf between rich and poor has widened.
Israel’s real estate market has unique structural problems, too. As much as 93 percent of Israel’s land is owned or managed by the government, part of a policy dating to the nation’s founding in 1948 to preserve a Jewish state. That means most real estate sales are actually long-term leases, giving the state unusually large authority over land use.
The bureaucracy-heavy process that builders must go through to get projects cleared has slowed construction permits, constricting the supply of apartments and lifting prices in a country roughly the size of New Jersey. Among Prime Minister Benjamin Netanyahu’s responses to the housing protests has been a promise to cut red tape at the Israel Lands Administration, which handles the bidding for leases.
Netanyahu is painting himself as an ally in the struggle to build housing that middle-class families and students can afford. He has pledged to build 50,000 housing units in the next 18 months with incentives of free land for construction of low-rent apartments. Protest leaders are instead demanding immediate government steps to bring down rents and regulate housing prices.
Netanyahu may try something radical. In previous stints as Prime Minister and Finance Minister, he led the drive to sell government-owned businesses, including El Al Israel Airlines and Bezeq, the telecom company. Now he is trying to push through the sale of Israel’s ports and public land. If developers owned land outright, they theoretically could build much faster. In the meantime, a tent in Tel Aviv is the best deal going.
The bottom line: With housing prices up 40 percent in the last three years, Israelis are demanding a remedy. Selling off public land is one option.