A close analysis of the new housing program was presented last week by the finance, interior, and housing ministers. Can it really succeed? Israel Hayom takes a look.
Increasing supply
The program sets ambitious goals for increasing supply during the government's four-year term: 280,000 housing starts in the years of the program's implementation – constituting a rise of tens of percentage points compared to housing starts in recent years; 500,000 new housing units to be planned in the planning institutions; publication of tenders for 300,000 housing units on state lands; and the successful closure of tenders on state lands for the construction of 180,000 units.
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Chances of success: nothing new here – just some more rehashed promises. In the meantime, housing starts are in decline and land marketing is weak. This, despite the fact that the Minister of Finance has already bought whiskey for the Israel Land Authority's CEO, to celebrate the 45,000 transactions he made since the beginning of the year. Quite an achievement.
Market acceleration
In order to expand the construction of new neighborhoods, leading to a major increase of the housing unit supply throughout the country, what is needed above all is infrastructure to support these new neighborhoods. This includes transportation, drainage, water, sewage, and more.
To expand investments in infrastructure so as to increase the housing supply, the government will invest, over the years of the program, NIS 8 billion in infrastructure for housing.
To meet the needs of the population in new neighborhoods, the government will invest NIS 5.5 billion during the years of the program in building new schoolrooms.
Furthermore, about NIS 640 million will be allocated in the coming years for accelerating licensing processes, and over NIS 2 billion will be invested in the Arab community to advance planning, development, construction of public facilities, and more.
Chances of success: the roof agreements contained glorious failures in these fields. If the budgets have indeed been allocated, as the ministers claim, that's certainly good news. The problem, in these cases, is not the money but the implementation – or lack thereof.
Public housing
Just a drop in the bucket – an addition of 4,700 apartments, when the waiting list for public housing is 30,000. The state will purchase for this purpose 1,700 new apartments.
Chances of success: public housing in Israel hasn't been functioning properly for years, but we're keeping our fingers crossed.
Cancellation of quantity-based relief measures
The new Arrangements Law is expected to cancel the quantity-based relief measures in the Planning and Construction Law that have caused significant delays in planning times and distorted planning procedures.
The program states that plans submitted after January 2023 will not be eligible for quantity-based relief (referring to construction area, number of housing units, and number of floors). Relief in other topics will be granted only if these topics are specifically defined in the regulations as ones regarding which relief can be requested.
As for older plans, the law grants three years (until January 2025) in the existing relief track, with a possible two-year extension approved by the Minister of Interior. This is meant to give the housing market time to adjust to the cancellation of relief measures and prepare up-to-date plans.
In recent years, increasing use has been made of relief measures in a way that has made them routine. The result has been licensing processes that bypassed planning, and, mostly, the prolongation of licensing procedures, overloading the planning institutions in the licensing stage.
An analysis performed by the Planning Administration and presented to the committee showed that a significant percentage of construction plans does not achieve quick and efficient realization due to requests for relief measures. The existing licensing procedure, which includes the provision of relief measures, prolongs the licensing process by several months at the very least, and in some cases by much longer – even years.
Relief provided based on construction area or number of housing units often leads to additional relief measures, can interfere with municipal programming, change the planning situation, and sometimes causes a phenomenon of under-planning, due to the developer's intention to add units or construction areas following the approval of relief measures.
The relief procedure actually produces an additional planning procedure that includes publishing relief measures for the benefit of neighbors and other interested parties, a major planning discussion at the local committee, and decisions regarding objections, and often even discussions in the district appeals committee and in the courts. These discussions take place after the plan has already gone through all the necessary stages at the planning institution.
Thus, the licensing procedure, which was supposed to be short and efficient, becomes a long and cumbersome semi-planning process focused solely on the single lot and oblivious to the bigger picture.
Chances of success: this is a very important decision. Its chances would have been slim if not for Minister Shaked's statement: "I directed the district committees to approve as much as possible in advance." In that case, the chances are excellent. Everything depends on the guidelines of the committees.
Urban renewal
Urban renewal increases the supply of housing units in the heart of the urban space, with an emphasis on areas significantly lacking in available land. Urban renewal has many economic, urban, and social advantages. In the city centers, it can increase the supply of housing units with easy access to high-quality and high-productivity employment while saving time spent in transit, due to a reduction in the number of commutes.
Urban renewal upgrades older urban environments and the economic condition of veteran populations holding properties in the renewed complexes. Construction as part of urban renewal reduces the need for construction on open areas.
As part of the Arrangements Law, the government is advancing a major reform to accelerate urban renewal construction. The reform removes many obstacles that stand in the way of evacuation-reconstruction projects ("pinui-binui"), including steps to curb the phenomenon of objecting tenants, increase protection of tenants from abusive signing campaigns and developers unable to advance construction in their buildings, create certainty, and reduce regulation throughout the pinui-binui process, as well as expanding tax relief measures in these projects. The government will invest about NIS 500 million in infrastructure supporting urban renewal in order to allow the addition of housing units to the urban fabric.
Chances of success: anything said and done for pinui-binui – we're all for it.
TAMA 38
Due to the fact that the TAMA 38 program is slated to expire in October 2022, and in light of its contribution to housing starts in recent years, the Minister of Interior is advancing an alternative to single-building renewal. As part of the proposal, local committees will be authorized to advance plans that will increase building rights to 400% in the demolition track and to 200% in the reinforcement track, and to allocate a floor for public use that will meet the challenges of the increase in housing units.
A mechanism will be developed to provide incentive to local authorities to advance such plans in their territory through the payment of an improvement tax or the allocation of a built public floor. Legislation will be advanced to change the majority required for approval of a project so that it matches the majority required for urban renewal projects (66%). Legislation will be advanced to extend tax incentives for TAMA 38 plans, as follows:
According to the decision of the National Planning and Building Council, the National Outline Plan 38 (TAMA 38) for reinforcing buildings in case of earthquakes will expire in October 2022. At the end of December 2021, tax benefits for those involved in a transaction as part of a TAMA 38 project, as detailed in the Land Taxation Law (Improvement and Purchase) and in the VAT Law, will expire already. The tax benefits for TAMA 38 projects should be extended until the entire program expires, and tax benefits should be provided for the alternative program for single-building renewal.
- Improvement tax – there is an exemption from improvement tax for tenants on construction services they receive from the developer for additions to their apartment that are no more than 25 sq.m. In the case of a project that involves demolishing the original building, the tax exemption is granted when the tenant receives only one apartment in exchange for agreeing to the TAMA project (or two apartments in some special areas). The tax benefits are provided only with respect to compensation in the form of construction services.
- Purchase tax – the developer will pay a purchase tax at the date of the actual commencement of construction (unlike the usual situation, in which the tax applies from the day of signing the purchase agreement) and based on the value of the construction services provided to the tenants.
- VAT – the developer will be eligible for 0% VAT on construction services provided to tenants, and in exchange will be allowed to deduct costs incurred in the construction process.
Chances of success: the municipalities are already against the TAMA 38/1 Program – Additional Floors and Structural Reinforcement. On the other hand, there is no choice but to implement TAMA projects in places where pinui-binui is not feasible. An interesting proposal that depends on the willingness of developers to continue in such projects and that of municipalities to encourage them. TAMA 38 was supposed to have been scrapped already, and that isn't happening. It will probably continue to be part of our lives in the foreseeable future.
From office to apartment
In light of the significant surplus of available lands designated for office use, and due to the need to increase housing supply (particularly in high-demand areas), as part of the Arrangements Law, the government is advancing conversion of office space to regular apartments, apartments for long-term rent, student dorms, and assisted living facilities as part of a licensing process that will convert up to 30% of planned office space. The mechanism will allow quick conversion of office space to housing through a shortened procedure that does not require replanning.
The licensing process is relevant for buildings still in planning stages. In mixed urban building schemes, up to 30% of the building space will be allowed to be converted to small apartments; in homogenous urban building schemes, up to 30% will be allowed to be converted, but only to rentals, assisted living, and dorms.
The government intends to create a subcommittee at the National Planning and Building Council that will discuss detailed plans for converting office space to housing using a shortened procedure. Such a step will enable the conversion of a higher percentage of office space to housing, without imposing limitations on the apartments' features.
Chances of success: slim. Suitable for masochist mayors only. Just try to convince a mayor to give up municipal taxes from businesses (which are much higher than for housing) and to agree to the headaches created by residents complaining about the lack of services and public facilities in their area, which were not planned in advance since the area was not at first designated for housing.
Removing obstacles
To advance government cooperation in the housing field, and following the involvement of all the government ministries relevant to increasing the housing supply, a Directors-General Forum was created headed by the Director General of the Prime Minister's Office. The forum will convene often to discuss obstacles to planning and development, with the aim of increasing housing supply.
Chances of success: back to Shimon Shabas's "DG Bus" under the Rabin government. Undoubtedly a good and feasible idea.
Extending the Priority Housing Committee
The National Planning and Building Committee for Priority Housing Areas (VATMAL) has contributed significantly to increasing the planning inventory of housing units and shortening planning procedures. To increase supply, the government proposed a bill, which was approved by the Knesset, to extend the activity of the VATMAL and accelerate activity in all tracks (multi-unit compounds, urban renewal, Arab sector).
Chances of success: already happening.
Improving licensing efficiency
The Ministry of Interior is leading a broad reform in licensing procedures and creating a range of fast tracks for receiving permits within a short time. In recent years, procedures for receiving a building permit have been growing longer, becoming a major obstacle on the road to increasing housing unit supply. The proposal is to allow licensing through an authorized agent, that is, an architect authorized to issue a building permit.
The Arrangements Law offers a way for implementing such an arrangement, which at the moment applies to a limited range of cases. The Ministry of Interior plans to apply the arrangement to more cases.
The Ministry intends to advance additional tracks suited to the needs of the applicants, so that a number of tracks are offered to the public. One of the ideas being considered is the creation of licensing institutes, like those that exist in some developed countries.
Since the relief measure mechanism will be cut back, issuing a building permit will become a technical procedure and will not include planning aspects that require consideration by the local committee.
The idea of a volume-based urban building scheme will be promoted – a way to provide greater leeway and prevent unnecessary red tape caused by the distinction between main areas and service areas.
A plan + permit program will be advanced, in which the period of time for completing the planning and licensing procedures will be shortened. An architect will be allowed to plan the building himself, without receiving approval from committees, for a building up to 9 stories high. This could shorten the process by up to two or three years.
In which cases will self-licensing apply?
- An application for a permit without relief measures
- An application intended mainly for housing (at least 80%)
- All the owners, including the ILA, have to give their consent. If consent is not reached, one of the owners can object, but in this case the architect authorized to issue a license cannot hear objections.
- Every application must be evaluated at an evaluation institute, except applications for buildings up to 2 stories high with up to 5 housing units.
- The application does not refer to a building intended for conservation.
- The arrangement is voluntary – a local committee or local authority in the area of a district committee can decide that in their jurisdiction, self-licensing will not be applicable.
- The authorized agent approves the application, including stages of execution: approval to begin works and certificates of completion.
- The authorized agent is listed in the Architects' Registry as a licensing architect with experience building 5,000 sq.m. over the past 10 years.
Chances of success: already tried and failed. Architects refused to take responsibility for licensing procedures just because we're living in such a disorganized country. As for licensing institutes – that's a nice idea that works in Miami. In Israel, the idea has been sitting on the shelf for a few years due to disputes. It'll take years for all this to become reality.
Strengthening the periphery
Creating another district committee in the center of the country and a special committee for the Golan Heights. In Katzrin, the intention is to release 1,500 apartments so as to double the size of the settlement.
Chances of success: strengthening the periphery is important. Its success depends on the government's willingness to provide tax benefits to residents.
Purchase tax
In order to bring down surplus demand by investors, which leads to price hikes, the government proposes raising the purchase tax on investors to 8%.
Following the reduction in the purchase tax on investors by Minister Katz in July 2020, purchases by investors rose significantly, reaching about 20% of the total number of transactions in the housing market. The data shows that the rise in investors' demand created surplus demand. Lowering the purchase tax thus accelerated the rate at which apartment prices rose.
In order to scale back surplus demand by investors, the government proposes raising the purchase tax according to the following brackets (in each bracket, the tax rate will apply from the first shekel): up to NIS 5,348,565 – 8%, over NIS 5,348,565 – 10%.
Chances of success: though it will take 10 days, unfortunately this measure will be implemented.
Private land
To encourage construction on private land, the program proposes granting tax benefits to landowners who will build on their land in the coming years, and fixing distortions in the improvement tax. The government will take steps to benefit those who will advance construction on private land in the coming years, and will exact a price from those who will continue holding the land without building. Tax benefits will be granted to owners of built land who will complete construction in the coming years.
In the last years, two initiatives were legislated with the aim of releasing historical lands for construction. The tax rate for selling lands bought before 2000 is 47%, while the rate for lands bought at a later date is 25%. When selling the land, a linear computation is made of the period during which the land was held. This means that continuing to hold the land leads to a lower tax for every year that passes, so there's no motivation for historical owners (usually private individuals) to sell the land to a developer who will build on it.
The steps taken so far stipulated that construction must be completed within a set time period. The existing mechanism provided incentive for building only for those who in any case expected to complete construction in that set period. It is now proposed that anyone who completes construction within 4 years of the transaction will pay a tax rate of 25% for the entire period of holding the property. For construction completed between the fifth and eighth year since the transaction, the calculation will be based on a differential tax rate, with the rate for the years prior to 2000 rising gradually from 25% to 47%.
Chances of success: high. The carrot-and-stick method for landowners.
Detached houses
Dividing properties with added building rights – the proposal is to allow property splitting without an additional planning procedure to create an apartment for rent or for accommodating a relative of the owner. To encourage such splitting in a way that will increase supply, the proposal is to allow an addition of building rights for up to 45 sq.m.
As of today, properties can be split according to the following regulations:
- The property is detached.
- The size of the property is at least 120 sq.m.
- The additional apartment is at least 45 sq.m. (not including service areas).
- There is no expert opinion of an engineer on behalf of the local committee that the infrastructure, parking spaces, public facilities, and open territories are unable to withstand the burden that will be created by the increase in housing units.
- No objection has been submitted according to Section 149 of the Planning and Building Law. If an objection has been submitted, it has not been proven that the relief measure provided through splitting the property will cause unreasonable harm to the objector.
- Temporary orders will not apply to settlements regarding which a limitation has been set in TAMA 35.
- The use of the additional unit to be created by the division will be for rent or tenancy by relatives of the property owner.
- The additional unit cannot be sold separately from the original unit.
- For the purposes of computing the improvement tax on the property, the division will account for 34% of the entire improvement tax; half of the tax will be paid on the date of the permit issue, and the rest, when the property is sold.
- It is proposed to extend the temporary order stating that to complete the division of the property, 45 additional sq.m. will be allowed to be built as part of the permit.
Chances of success: high. A decision that will make the rich richer.
Nonconforming use
Many apartments, particularly in high-demand areas, are currently in nonconforming use, serving as offices or clinics. This allows for mixed-use buildings in the urban space, yet at the same time removes many apartments from the housing market.
In light of the housing shortage, alongside the planned surplus in employment and housing areas, the option of nonconforming use should be cancelled, and these apartments should be returned to use for housing purposes only. This change will not apply to daycare centers and kindergartens, which will be allowed to continue nonconforming use of apartments.
Chances of success: the Tel Aviv Municipality tried this once and failed. It will lead to lawsuits, fights, disputes, and in any case, it won't happen tomorrow.
Cancelling Airbnb
Many apartments are advertised for rent through sharing platforms such as Airbnb. This use does not require licensing or registration, is not subordinated to a different municipal tax regime, and is not limited by planning considerations of the urban fabric by the local authority. Income or corporate taxes must be paid on profits from rent through a sharing platform, but the rates of collection and enforcement are very low.
These apartments are in the heart of in-demand areas and they are removed from the inventory of apartments in areas characterized by a severe lack of housing units. The program proposes applying the prohibition on nonconforming use to the use of apartments as regular hospitality accommodation.
Chances of success: this measure may impinge on property rights and may entail a legal struggle. In various countries, the authorities successfully implemented similar steps.
Renewal in the periphery
An inter-ministerial committee will be created to examine tools for urban renewal in the periphery. A budget of NIS 155 million will be allocated for pioneer urban renewal projects in the periphery. Alternative lands will be found for new construction so as to increase pinui-binui rights. A pilot has been decided on for cities such as Jerusalem, Ashkelon, Rehovot, Givat Shmuel, and Lod. What does this have to do with the periphery? God knows.
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Chances of success: this is vital. But will it happen? It's doubtful. There are much better methods, such as those proposed by the contractors – for example, monetary funds that receive tax benefits, an accepted method worldwide.
Goal price
This week, a goal price took effect in all tenders to provide an immediate solution for young buyers – a 20% discount, up to NIS 300,000 per apartment. "The state is giving up income from land totaling NIS 12 billion, and some estimates say it will reach NIS 20 billion," says Elkin.
Chances of success: another couple of thousand young buyers will enjoy a discount. A new plan is born every day…
Long-term rent
The Finance Committee has already approved amendments to the Encouragement of Capital Investments Law for second and third readings. The amendments are meant to support the long-term institutional rent market. The period of obligatory long-term rent will jump from 5 to 15 years. The intention is to market 6,500 apartments next year for long-term rent.
Chances of success: encouraging institutional bodies comes at the expense of private owners. The government is certainly making things easier for them. It now remains to be seen to what they degree they succeed in implementing the many changes.
Foreign workers
An addition of 30,000 workers, 9,000 of them already in Israel.
Chances of success: Kahlon promised 20,000 Chinese. So he promised.
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