The Homestead Initiative for Israel

Israel is suffering from a major affordable housing crisis.

Earlier this year, Israel’s State Comptroller Joseph Shapira released a scathing report on the country’s housing crisis, blaming the escalating housing costs on government inadequacies and a stifling bureaucracy. The 294 page report revealed that from 2008-2013, the average cost of an apartment in Israel rose 55%, with rents rising 30% during the same time period.

A three-bedroom apartment costs an average $675,000 in Tel Aviv and $450,000 in Jerusalem. Similar apartments in outlying areas cost about a quarter of a million dollars. With the average salary in Israel at about $2,300 a month and rising 23 percent in the past eight years, the ability to own a home is becoming out of reach for many Israelis. The Shapira report noted, “The various government departments responded with no strategic plan of action in the long term, and without having set any goals.” Due to rampant anti-Semitism, an expected wave of French immigration to Israel could push housing Israeli prices even higher.

Quite simply, Israel has a shortage of tens of thousands of homes. At the same time, 93% of land in Israel—“Israeli Land”—is owned by the State with only about 7% under private ownership. According to Israel’s Basic Law on real estate, Israeli Land is jointly owned by the State (69%), the Development Authority (12%), and the Jewish National Fund (12%). The Israel Land Authority is the government agency responsible for managing this land which comprises 4,820,500 acres.

Affordable housing and cost-of-living issues played a significant role in the March 2015 Knesset elections. The Kulanu party, which campaigned for major housing reform, explains on its website that construction time for new apartments in Israel requires an incredible seven years, considering all aspects of the construction procedures from planning, marketing, development, and licensing. Moreover, many potential immigrants wishing to leave France or other Western countries because of anti-Semitism may be hesitant to do so because of the lack of affordable housing and limited job opportunities in Israel. At the same time, large areas of land in both the north (Galilee and Golan) and south (Negev) in Israel remain sparsely populated.

Finance Minister Moshe Kahlon’s plan, effective as of July 1, implements an additional tax on residential real estate meant for investment. The plan intends to make investing in inexpensive homes less attractive, leaving them to first-time buyers. While this plan is well intentioned, increasing taxes on investment property may have the unintended consequence of increasing housing costs for renters of these less expensive homes as well. Indeed, this taxation plan could negatively impact Israelis who are the most vulnerable financially.

The crisis of affordable housing significantly degrades the quality of life for many Israeli families, and may destabilize the Israeli economy and political system. It also impairs a major promise of Zionism – the rescue of Jews fleeing from persecution.

To help address this crisis, Israel should implement a well-crafted and innovative Homestead Initiative. In short, an immigrant to Israel or non-landowner Israeli would receive a plot of land upon which to build a house or apartment in the north or south of Israel with low interest loans to cover the costs of building the structure. In exchange, the participant would make a minimum five year commitment to live in the home and community. After five years, the participant would receive title to the land outright.

The Homestead Initiative addresses several important political policy goals simultaneously:

• Substantially addresses the affordable housing crisis in Israel.
• Provides immigrants from Western countries with socio-economic incentives to move to and work in Israel.
• Provides socio-economic incentives to expand populations into both the north and south of Israel.

Historically, homesteading has been used by governments engaged in national expansion to help populate and make habitable less desirable regions. President Abraham Lincoln signed into law the U.S. Homestead Act of 1862 to encourage settlement in the western United States. It was fabulously successful, and helped settle tens of thousands of acres throughout the United States. While a pure market-based solution for the Israeli government might be to auction off land for development, doing so in remote areas without strong economic or development incentives may not achieve the aforementioned policy goals.

The Homestead Initiative strategy must first identify homesteading regions in the north and the south of Israel. The initial areas should have speedy transportation access to larger cities (such as Haifa and Nahariyah in the north, and Ashdod, Ashkelon and Be’er Sheva in the south) for employment, goods, and services. Once the target regions are determined, the Knesset should adopt the contours of the Homestead Initiative policy which should include the establishment of economic “enterprise zones” to stimulate economic growth, facilitate the creation of new jobs, and increase entrepreneurial opportunities for businesses in homestead regions. Additionally, the Israeli government should streamline the bureaucracy to accelerate building permitting and timelines for infrastructure, homes, and businesses in homestead regions.

The Homestead Initiative should appeal to people from all different political perspectives, and offers the opportunity for proponents to build coalitions across parties and political ideologies. This program will help relieve some pressure on the housing market, provide Israelis and Western olim with affordable housing within cohesive communities, while providing job and development opportunities for businesses and labor in economic “enterprise zones” in homestead regions.

To address this crisis, the Israel Land Authority must open hundreds of thousands of acres to residential housing and business development. The Homestead Initiative offers the opportunity for the north and south of Israel to become more vibrant, provide economic opportunities, and grow regions where more affluent populations might desire to live. Homesteading, as part of an overall land reform effort in Israel, will help bring needed relief to both Israelis and olim as well as create cohesive and dynamic communities of diverse populations in what have up until now been remote and sparsely populated regions.