Public Housing Option

Adva Center’s Response to the Housing Crisis in Israel: A government initiative for building apartments for long-term rental at affordable cost for the general public

Against the background of current government programs, “Buyer’s Price” and “Apartment for Rent,” Adva Center proposes that the government forego its exclusive dependence on the “free” market and initiate construction of long-term rental housing, under public ownership and at rents below the market price.

In other words, what we are proposing is a massive increase and significant improvement in public housing, so that it becomes relevant to the middle class, mainly young couples seeking a roof over their heads that is close to good schools and employment offering a living wage.

The proposal is based on the estimation that the economic and social trends that led to the present housing crisis, foremost among them strong market forces commonly referred to as “the investors,” will continue into the foreseeable future, an estimation whose implication is that the model of home ownership, dominant since the establishment of the state, can no longer serve as the sole basis for a housing policy relevant to all.

Following are the main findings and contentions of the report:

  1. The accepted rule in many countries is that the expenditure on housing should not exceed 30% of a household’s disposable income. A higher expenditure on housing results in a diminishing of the household’s ability to afford basic consumption items, increases its financial vulnerability and is liable to lead to a real decrease in its standard of living.
  2. In actuality, many Israel households, both those living in rental housing and those paying off mortgages on their own apartments, expend more than 30% on housing: In 2014, for 5% of Israeli households, housing expenditures exceeded 30%. The expenditure includes monthly rent or mortgage payments as well as other expenses like water and electricity, maintenance and local taxes.
  3. The situation of households with rental housing is worse than that of those living in their own apartments: in 2015, the average housing expenditure of households in the five lowest income deciles living in rental housing was much higher than 30% of their disposable income: In the lowest income decile, the average expenditure on rental housing amounted to 62% of disposable income, and for the next highest deciles, the average expenditures totaled 45%, 37%, 35% and 33%, respectively, of their total disposable income.
  4. Our calculation shows clearly that at the present time, purchasing an apartment in high-demand areas is a privilege shared only by households in the top income deciles. For some 60% of households, purchasing an apartment in high-demand areas without the benefit of capital totaling 25% of the price of the apartment, results in a decrease in the standard of living.
  5. The recommendation to create a public rental option, rather than continuing to base the rental market exclusively on private rents, emerges, among others, from figures showing that, in essence, the private rental market constitutes an arrangement whereby low-income households transfer capital to high-income households – an arrangement that makes an important contribution to social inequality. 71% of rent monies transferred to homeowners who rent their premises, end up in the pockets of households in the three highest income deciles. In 2015, the top income decile alone received 6.3 billion shekels in the form of rent, which amounted to 45% of the total income from rent of all households renting out premises they owned.
  6. The model we propose, centered on a massive increase and significant improvement in public housing, is based on the experience of other countries, mainly in western Europe. At the present time, Israel ranks low in international comparison when it comes to public housing. In 2015, only about 2% of Israeli households were living in public housing, while in European countries, among them Holland, Austria, Sweden, Great Britain and France, the percentage of households residing in public housing units was much higher and ranged between 17% and 32%.
  7. Based on the accumulated experience in European countries with regard to extensive public housing, and taking into account real construction times, we propose that the government create a supply of 450,000 public housing units over the next 10 years. This supply should be maintained at a level that constitutes half of the rental housing market and some 15% to 20% of total housing units in Israel.
  8. Under the model we propose, the new housing units built are to remain under public ownership and continue to constitute part of the supply of public rental housing, without a stipulation that they be sold to private owners after any given period of time. In addition, the allocation of public housing units is to be done according to criteria that include all households that do not own homes. At the same time, we assume that most of the demand will come from households in the six lowest income deciles.

We propose that the government become an active, direct agent in the housing market in order to create a public option for long-term rental, one that will operate side by side with the options of home ownership and private rents.  Our proposal is being offered as a housing solution for households that either are not able or do not desire to purchase an apartment and at the same time is to serve as a way of lowering rents in the general housing rental market.