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Israel's Land Policy and Housing Prices Abstract – Summary of Pilot Study

SNI has taken on the challenge to examine the reasons for the increase in housing prices in Israel. Among other things, it was found that investing efforts to curb the high housing prices ignores the implications of the fact that only in Israel, unlike all other OECD countries, most of the land reserves are nationally owned. The accepted public perception is that national ownership should allow better control over prices than the private market. The hypothesis of this research is that the effect is in fact contrary.  This study is the first to attempt to test whether national ownership is an asset or liability. At this stage, the study is in its exploratory stage.

The methodological challenge is that the Israeli context does not provide a natural "control group" where national land ownership is insignificant. International comparison is not valid due to the numerous contextual differences.  Using analytical models and simulations, the research attempts to examine the expected effect on land price levels if the Israel Lands Authority (RMI) had operated similarly to the private market. Currently, RMI controls the contents, timing and minimal price levels for land tenders. We developed a database that includes all the plots issued out for tenders for housing projects nationwide since 1998 (2,785 sales).

As prices rise over time, the tender procedures were found to add an average of 6.2 years to the time between approval of a zoning plan and the issuing of building permits. To quantify the impact on housing prices, we examined 407 plans representing 2,155 tenders. The findings are that under certain circumstances, the delays related to land tendering may encounter an annual price increase of up to 8.5%. In addition, statistical correlation was found between the percent of national land ownership within municipalities and the prices of plots tendered out. For example, in areas where RMI holds 100% of the land, prices are about 10% higher (despite the fact that towns tend to be located in the county's periphery). The hypothesis is that this counterintuitive finding may be due, to some extent, to the national land monopoly. However, as this is exploratory research, we have not yet controlled for various additional factors, nor have we analyzed other costs and benefits of national land ownership.