The past fifteen years have been characterized by steep increases in housing prices and a decline in the affordability of housing in Israel. Given this situation, the need for affordable housing is now prominent in the public discourse. Efforts to achieve this goal are reflected in a set of policy instruments designed to provide suitable housing solutions, while maintaining the financial independence of the purchasers or tenants. The Buyer’s Price Program (BPP – Mechir Lamishtaken in Hebrew) is intended to substantially increase the supply of affordable housing and enable non-homeowners to purchase an apartment in a variety of housing projects around the country for an amount below the free market price. The Myers-JDC-Brookdale Institute (MJB) submitted to the Ministry of Construction and Housing (MCH) several proposals to examine the BPP from different angles. In agreement with the Ministry, it was decided to focus on two perspectives: those of the eligible purchasers and those of the real estate developers.
The study of eligible purchasers was designed to examine the following:
- The sociodemographic characteristics of eligible participants
- The satisfaction of the participants (the “eligibles”) with selected aspects of the program
- The purchasers’ decision-making process (particularly if this was their first apartment)
- The correlation between the eligibles’ characteristics and their patterns of activity in the program, and their satisfaction with the program.
The interviews with the developers were designed to examine the following:
- The characteristics of the developers’ participation in the program
- The considerations that govern their actions, their opinions about the program, and the degree of their satisfaction.
The study of the eligibles was based on a self-report internet survey distributed to all holders of eligibility certificates (165,000 households). After cleansing the data, we obtained 23,608 questionnaires with sufficient information to conduct a statistical analysis. The study of the developers was based on 15 in-depth interviews with real estate developers with varying characteristics, some of whom participated in the program, while others did not.
Main Findings in the Study of the Eligibles
Characteristics of the eligibles: A high percentage of young people, couples with children, and tenants in rented accommodation, as well as people with a college education, people living in the center of Israel, and people in the second and third household income (gross) quintiles. We also found over-representation of the ultra-Orthodox and under-representation of Arabs in relation to each groups’ percentage in the total population of Israel. Most of the purchases in the program were made by eligibles in the first to third quintile (in the periphery, 75% of all purchasers are in those quintiles).
Characteristics of the eligibles who forfeited their lottery win: Eligibles in series B or C (those who had registered later), those with higher income, ultra-Orthodox and residents of the Jerusalem district were found more likely to withdraw from the program and purchase an apartment on the free market.
Search for an apartment triggered by the program: Almost half of all the eligibles began looking for a home because of the program. Their socioeconomic profile shows that they belong to disadvantaged social groups.
Conduct in the housing market: Eligibles who purchased an apartment through the program paid on average NIS 100,000 less than those who purchased on the free market, received less financial assistance from their families (in the amount and the rate), and invested less of their own capital – but a higher proportion of the value of the apartment. Subsequently, those who bought through the program took out mortgages at a higher rate.
Planning vs. actual purchase: In comparison to those who purchased through the program, a higher rate of eligibles who purchased on the free market bought smaller and/or more expensive apartments than they had planned to buy. Regarding the location of the apartment, most of those who purchased through the program purchased in the district they wanted; just under half of them were able to buy in the locality they wanted.
Satisfaction: About two-thirds of all the eligibles who participated in the survey responded that they would recommend it to a friend meeting the program’s eligibility criteria. However, there were some aspects of the program for which less than a third reported satisfaction.
Main Findings in the Developers Study
Characteristics of the developers: In the study, senior representatives of real estate companies with different characteristics were interviewed: new and old-established companies, those with a greater or lesser extent of work, companies working in different areas, privately owned and public companies, Jewish and Arab companies, development companies vs. developers and contractors.
Thematic analysis: Three main themes emerged from the interviews with the developers, indicating their ambivalent attitudes to the program:
- The effect of state involvement in the project:
- Some of the companies noted that the project is over-regulated, which reduces entrepreneurial freedom and reduces the project’s ability to succeed, while others believe that the stiff regulation gives an advantage to the engineering and building professions and is therefore good for the project.
- The bureaucracy and regulation lead to delays and make it more difficult to complete projects in a reasonable time.
- Reducing the uncertainty about projects increases access to financing.
- The effect of the structure of the program’s tender:
- Obviating the need for marketing campaigns, standardizing the specifications and structure of the apartments, industrial construction, and negative incentives to delay construction reduce the cost of construction for the developers.
- The method of the tender affects the architectural product – i.e., the way in which the developers plan and execute the project, unlike the practice in the free market.
- Inaccurate appraisal in the tenders for the land exposes the developers to risks and unjustifiably increases the cost of the apartments for some of the eligibles.
- The effect of the public nature of the program and the informal association formed by the eligibles for decision-making purposes:
- The eligibles’ informal association and media exposure give the eligibles great power vis-à-vis other parties in the program.
The following are the main recommendations for the BPP, or for future programs, arising from the findings of these two parts of the study:
- Hold the lotteries close to the time the building permits are issued to shorten the waiting time between winning and purchasing
- Improve the service of the inspection companies and maintain ongoing contact with the eligibles
- Provide apartments of varying sizes in the projects and increase the supply of four-room apartments
- Continue the combination of BPP apartments and those sold on the free market in housing projects (diversity of sales methods)
- Limit the amount of the discounts in areas where there is demand and increase the grants in the periphery
- Market attractive tenders in Arab localities in coordination with the local authorities
- Develop additional policy instruments with conditions suitable for the traditional Arab population.
- Give the developers’ more latitude by differential pricing at the building level and the possibility of construction and occupation of the projects in stages
- Conduct surveys of the demand before the marketing of the land and state commitment to purchase apartments
- Improve coordination between the local authorities and other public authorities in order to shorten the waiting time for building permits to be issued
- Standardize appraisals for future tenders by comparing appraisals for actual deals with appraisals for tenders conducted previously in a random sample of occupied projects in a particular area.
The study was commissioned by the Ministry of Construction and Housing and funded with its assistance.