From the end of 2020, following the COVID-19 crisis and the resulting commodity crisis, the global and domestic economies entered inflation. We all feel this directly, with a significant increase in the cost of living.
Is there a way to slow inflation?
Is there a link between real estate activity and inflation?
What can the Israeli government do to encourage real estate activity?
What is inflation?
To simplify the concept of inflation, we are talking about a situation in which the price rate rises, while on the other hand there is a continuous decline in the value of the local currency. Economists explain the concept of inflation, as a state of consistent price increases, which exceeds the normal growth of the market or domestic economy. The same increase is reflected in an increase in the prices of goods, goods and services that we consume relative to previous years. Thus, the ratio of supply to demand changes. The market enters a course of over-demand for goods and goods, and low supply. Inflation directly erodes our purchasing power, or simply put, our money loses value and is worth less
What is the connection between inflation and the real estate market?
In the State of Israel, as in most countries in the Western world, and developing countries, an inflationary process began at the end of 2020 and the beginning of 2021. As a result of this situation, sharp price increases began in rental and housing prices. These increases created high demand for cheap housing, in contrast to a low supply of apartments. It is no secret that in Israel, over the years, there has been a severe shortage between the number of apartments and the demand for them. They are in new apartments, and certainly in second-hand apartments, and apartments and houses for rent.
The real estate market is not only about apartments, high-density contractor construction, and transactions for the sale and purchase of second-hand apartments and houses. The real estate market dominates the entire field of development and infrastructure, such as roads, railways, sewage infrastructure, water, electricity and more.
I don't deal with economics, but a few years ago I heard a lecture in which it was argued that the activity of the real estate market, in all its aspects, accounts for about 40% of the volume of the local as well as global economy. Personally, I'm not sure if this figure is accurate, but without a doubt, as an architect, I'm well aware of the direct relationship between planning, construction and economics.
When, there is a negative impact on real estate market activity, for example, freezing tenders for plots for private construction, or canceling budgets for development of pressing and infrastructure, a direct impact is created on the entire economy.
It is important to remember that the real estate market is also affected by external factors such as security events, regime changes, global policy changes, extreme climate phenomena, etc. Even holidays and holidays affect real estate activity.
At the end of 2022, the State of Israel entered a socio-political spiral. The election campaign for the 25th Knesset, in the last quarter of this year, and the political-social instability, caused a situation of economic instability. All this, in addition to global inflation.
As an architect, when I look at real estate activity, I see a very worrying situation. The Israeli real estate market has entered a deep stagnation.
From conversations with real estate agents, realtors and real estate developers, it is clear that the scope of activity in the field of real estate purchases, real estate rentals, and investments or development of real estate developments for both residential and business purposes has almost ceased completely. Almost all of them are 'sitting on the fence', waiting for a change in trend.
Hence, there is a chain response, like a 'snowball' in the planning offices. Especially architects with small offices. Personally, I know a number of architects who have closed their businesses due to financial unfeasibility. Offices that operated in the field of private construction.
In my limited understanding, the Israeli government must begin to act to encourage real estate activity.
This can be done in several immediate ways:
- Investments in national projects such as road and infrastructure development.
- Thawing acquaintances for the purchase of plots for private construction.
- Accelerated approval of expansion plans for communities in the periphery.
- Encouraging the development of employment and commercial zones, and providing economic incentives.
- Streamlining the licensing process and shortening the time it takes to obtain a building permit in Israel.
- Ad hoc tax relief.
I am sure that there are other ways, which I have not considered, to encourage economic activity in the real estate market in Israel.
My name is Efrat Meiri, I am an architect and interior designer.
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