UN Resolution 2334: Death knell for Israel’s middle class?

Little noted in the media firestorm surrounding the passage of UN Security Council Resolution 2334, commanding Israel to stop all settlement activity, is the potentially deadly ramifications for Israel’s struggling middle class. With one vote, the United Nations outlawed most Israelis’ only way out of living from paycheck to paycheck.

Per square meter, home prices in Israel are among the highest in the world and home ownership is the biggest factor in inequality in Israel. As such, Israel’s middle class is gradually vanishing. Despite Finance Minister Moshe Kachlon’s best intentions, including a proposed ‘third apartment tax’ to fight the proliferation of apartments owned by the rich, the real estate bubble continues to expand. As a result, home ownership rates are tumbling. According to data published by Israel’s Central Bureau for Statistics (CBS), between 1997 and 2015 there was a decrease in the number of people who own their homes, from 70.2% to 67.6%.

Houses are seen in the Israeli settlement of Givat Zeev (bottom) with the city of Ramallah in the background. Photo by Baz Ratner/Reuters
Houses are seen in the Israeli settlement of Givat Zeev (bottom) with the city of Ramallah in the background. Photo by Baz Ratner/Reuters

Due to the high cost of living and lower salary levels in Israel, most families are unable to save the roughly 30% required as a down payment on a home. In the past year alone, according to one estimate, prices rose by 9%. The result is an Israeli society where financial benefits tend to go to those who already have capital. Such a situation upends the very notion of social mobility as a ticket to a better life in a market based economy.

However, CBS data may also point the way out of Israel’s crippling housing crunch.  The Central Bureau of Statistics finds that there has been less settlement construction under Prime Minister Benjamin Netanyahu than under any of his predecessors. In addition, 75% of population growth in the settlements during Netanyahu’s premiership has been concentrated in the major blocs, which will likely remain under Israeli sovereignty, no matter the final contours of an Israeli-Palestinian peace agreement. Another noteworthy stat: virtually all population growth in the West Bank during Netanyahu’s administration has occurred as a result of ‘natural increase’, not people actually relocating to settlements.

As such, new low cost housing over the Green Line could be a boon for Israel’s stressed out middle class, especially if the Israeli government were to invest in public transportation infrastructure that would ease access between West Bank homes and workplaces that are located in the center of the country.

Beyond building more affordable housing in the largely unpopulated sections of Judea and Samaria, another key factor in Israel’s construction crisis is the state monopoly on land. Shockingly for a developed market economy such as Israel’s, over ninety percent of all land is owned by the state or public agencies, and is administered by the Israel Land Authority (ILA).

This monopoly is the reason that at least 50% of the price of building a home in Israel is tied to land cost, whereas the figure in the United States is approximately 20%.

While a combination of Israel’s small geographic size, growing population, commitment to the absorption of immigrants, Zionist ideology and security needs has been used to justify the principle of national ownership, skyrocketing housing prices have increasingly put the ILA in the crosshairs of an outraged Israeli citizenry.

Even though Israel and China recently agreed to allow some 6,000 Chinese construction workers to come and work in Israel, this is but a stop gap measure. Ultimately, nothing will do more to reduce the price of housing than investing in construction in Judea and Samaria and finally solving the land reserves and state monopoly issues, starting with the dissolution of the Israel Land Authority.

Such bold moves would allow market forces to dictate price.

Since the backbone of any healthy democracy is the viability of its middle class, Israel today is in dire need of strong, clear eyed leadership to turn back the tide of rising home prices.

 

View other essays by Gidon Ben-Zvi that have been published by the Jewish Journal.

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