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Featured Economic Papers

August 2021

 

Author: Alon Kol Kreis

 

Main Points:

 

  • In the past year there has been a substantial surge in demand for new home
    purchases, resulting from factors created during the coronavirus crisis (among
    other things, increased household savings, as well as tax easing), combined with
    other factors, such as steady demographic growth and uncertainty in the market
    against the backdrop of the termination of the government's "buyer's price"
    program and the lack of an approved government budget.
     
  • On the other hand, the pace of delivery of new homes fell over the past year in light
    of a slowdown in construction work against the backdrop of the coronavirus crisis;
    whereas the rate of construction starts has been only slightly affected, yet remains
    low relative to the needs dictated by demographic growth.
     
  • In this reality, excess demand pressures in the housing market are strengthening
    and consequently, over the past half-year home prices have risen very fast (annual
    rate of 8.7%). Home prices are expected to rise by a similar rate also in the coming
    months.
     
  • In the medium-term, the shortage in new homes is expected to intensify, resulting
    from a substantial drop in the marketing of state lands intended for dwellings over
    the last two years. Various measures currently being considered by the
    government are likely to, if implemented, only partially alleviate the shortage in
    housing. Thus, the likelihood of further price increases in the medium-term
    appears high. However, the rate of increase will largely depend on government
    supply-side policies and their impact on the level of demand.
     
  • Most of the negative impact from the coronavirus crisis has been concentrated over
    the past year in the rental market, but demand in this market has still shown marked
    rigidity, taking into consideration the scale of the crisis. The share of renter
    households declined only slightly and the rise in rental prices continued, albeit by
    a slow pace relative to the past. Looking ahead, the rise in rental prices is expected
    to accelerate again gradually.
     

 

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