Featured Economic Papers
Author: Alon Kol Kreis
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
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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