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Friday, December 09, 2005

Jerusalem Real Estate Boom

There has been a spate of articles recently about the large-scale purchase of Israeli property by foreigners, most notably in Jerusalem, and by Americans. From the JPost:
Despite the vast influx of French immigrants and tourists who are buying up apartments in many parts of Israel, most notably in Netanya and Jerusalem, Americans are still in the forefront when it comes to big money properties.

There has been a tremendous growth in the foreign real estate market, according to Stuart Hershkowitz, deputy general manager and head of the international division of the Bank of Jerusalem.

"The main thrust of the Americans is on more expensive apartments," Hershkowitz told The Jerusalem Post between greeting guests at the annual Succot breakfast that the bank hosts for its clients. Luxury market sales have shot up by 120 percent over the past 18 months, he said. "If we saw a $1 million deal once a month, we now see a $1m. deal once a week."
I have personally seen this trend among friends and family alike, who have been snapping up property in Jerusalem as second homes. Another blogger, Jerusalemite Michael Eisenberg, has taken note of the same trend, and pointed out some unexpected effects of it:
There is a shortage of property in Jerusalem. This is particularly true of the central neighborhoods around town (Rehavia, shaarei Chesed, Katamon, Talbieh, German Colony) where most tourists like to buy and where the municipality is trying desperately to invest in and gentrify. This global market for Jerusalem homes is driving up the cost of real estate to stratospheric prices. Homes in the central neighborhoods have doubled in price in the last 4 years to approximately $700 per square foot ($7000+ per Sq. meter). Your average Israeli cannot afford to purchase these homes and are moving out of Jerusalem.

As such, you have buildings in Jerusalem where there is one resident living alone and others where the lights are only on during the Holidays. Sellers routinely wait for Holiday time to see if they can get a better price from the tourists coming into town. While this may be globalization and capitalism at its best, it is a municipal and Jewish nightmare.

There are 300,000 Arabs on the other side of town. If we keep emptying Jerusalem of Jews because they cannot afford housing prices, what will become of city? Who will vote in municipal elections? Is an Arab mayor not a possibility if this trend continues? Who will buy from the shopkeepers and keep them in town? We already have empty buildings. What's next? Empty blocks? an entire ghost town?
Very interesting points, which show that there is a huge downside to this foreign housing boom. I wish I could get more excited about his proposed solutions, though. His first:
1. Preferred Solution - Aliya
The preferred solution is clearly for those American and French Jews purchasing the houses to make Aliya and move to Israel. Life is good here. We have Heinz ketchup now (did not when I arrived), slightly more palatable tax rates, job opportunities, reasonable education, community and Nefesh B'nefesh which makes the bureacracy and social aspects a lot easier. Come move here. You will like it and I am sure you will bring with you all of your vast talents to improve society and the economy. Some will say I am naive for even making this pitch. I do not think so.
Noble suggestion, but I do think he is naive for making this pitch. Unfortunately, most of those that are able to afford apartments in Jerusalem are able to do so because of the living they make in the U.S., or other foreign locales. I don't see many of them choosing Aliyah at this juncture, as wonderful as it would be if they would.
His second suggestion is one I don't even get:
2. Less Preferred Solution - Non resident tax
We need to level the playing field by making it more expensive for non-residents to purchase homes in Jerusalem. While this hurts me to the core of my low taxes conservative economic DNA, the tax base in Jerusalem is very small and losing our population because of the cost of housing is making the situation worse. There should be an extra substantial municipal property purchase tax for non-residents and an increased Arnona/property tax (dare I say double). This money should go into a fund to provide affordable rental housing around the city. It could also be used as an offset to reduce the tax burden on shopkeepers and businesses in Jerusalem who are lacking for business due to empty homes.
That might help ease some of the financial burden, but it does nothing to solve the problem of the empty buildings and the increased Arab voting majority.

I certainly don't have any solutions to the problem myself, though I'm sure that the influx of cash from foreign buyers is enough of a boon to the Israeli economy that it still beats the alternative of a real lack of foreign presence in Israel, which was the reality during the height of the intifada.

27 Comments:

Anonymous Anonymous said...

Interesting reading. whenever I hear that someone bought an apartment in israel, my first thought is "kol hakavod", but no one thinks about the fact that these apartments sit empty all year long, and what afect that can have on the neighborhoods. i also don't know what the solution is, but i agree with you that the status quo (of americans owning real estate) beats the alternative (of a weaker Israeli housing market).

10:17 AM  
Blogger Jameel @ The Muqata said...

Orthomom: Great aliya pitch - its nothing to be ashamed of.

Buy now..before the only thing left will be non-airconditioned 600 square foot caravans in south central BeerSheva.

10:49 AM  
Blogger orthomom said...

Buy now..before the only thing left will be non-airconditioned 600 square foot caravans in south central BeerSheva.

LOL. It would look great as ad copy, I think.

11:44 AM  
Anonymous mycroft said...

It wouldn't surprise me if some of the purchasers of 2nd homes that cost greater than $1 million are the same people who complain about 3% budget increases in Lawrence PS for the non-wealthy.

11:55 AM  
Blogger orthomom said...

mycroft said...
It wouldn't surprise me if some of the purchasers of 2nd homes that cost greater than $1 million are the same people who complain about 3% budget increases in Lawrence PS for the non-wealthy


mycroft, had you not displayed so much negative sentiment regarding the Lawrence private school community in a different post on the topic, I would think you were joking with this out-of-left-field comment. Alas, I think you might be dead serious. If you are, then let me make a point I've made before: people can spend ther hard-earned money any way they choose, and still have the reasonable expectation of being taxed fairly. Spending money on an apartment in Israel does not make someone eligible for higher tax rates.

If you were joking, then LOL.

12:17 PM  
Anonymous mycroft said...

Momof4
Like many people I have close Orthodox relatives living in both Lawrence and Jerusalem-so it is an insult to say that I insult the "private school community"-In a different location-I am a member of the "private school community."
In general I agree that " people can spend ther hard-earned money any way they choose, " BUT it is inappropriate and certainly not a Kiddush hashem to see the the big unifying cry by certain members of the Lawrence community to oppose their responsibilities of American citizenship.
"still have the reasonable expectation of being taxed fairly. "
Orthodox Jews are taxed in Lawrence at the same rate as everyone else-which obviously makes me agree with "Spending money on an apartment in Israel does not make someone eligible for higher tax rates"

1:50 PM  
Anonymous charliehall said...

If the Arabs voted rather than boycotted the elections, they would already have a third of the members on the Jerusalem City Council. While they could not elect their own mayor, they would be able to determine which Jew would be the mayor. (They would also get much better services in their own neighborhoods.)

The problem with the aliyah "solution" is that the job skills most of us American Jews have are not what Israel needs. I was just at a Shabat table today and the four of us with earned doctorates were commiserating that if we were in the construction business, we would already have made aliyah. But Israel has a glut of physicians and professors -- and the few jobs that do exist there don't pay enough to cover US student loans. So we will have to be content with retiring there.

2:06 AM  
Anonymous Anonymous said...

this phenomenon benefits the jerusalem community by way of extra per capita spending by the municipality on the jerusalem residents. it also causes the value of the homes in jerusalem to appreciate, which represents a gain to presents homeowners should they decide to sell.

3:19 AM  
Blogger westbankmama said...

Why don't the people owning these luxury apartments "hire" young Jewish couples to "housesit", in exchange for a modest rent, with, of course, a stipulation to leave the apartment when the foreign owners come in for vacation.

It certainly would be a great chesed, especially if some of these young couples are those kicked out of Gush Katif?

(I know, I know, I am hopelessly naive. That's why I made aliyah!)

11:58 AM  
Anonymous Jerusalemom said...

I grew up in the NY metro area and I have to say your attitude towards aliyah so reminds me of my growing up years in the quasi Zionist NY MO community. It's nice to wave flags at the parade every year, but when push comes to shove, it's gauche/naive to actually suggest making aliyah.

When there's no more Jerusalem to come visit on the chagim, maybe then people will wake up.

3:01 AM  
Anonymous Anonymous said...

This is something that was discussed by us over the weekend (here in Baka) but from a different angle. The posters here and on the other blog are primarily focusing on the financial implications of this phenomena and are even arguing that it is in the best (i.e. financial) interests of the city- a claim which is debatable to say the least.

It seems to me that this is too narrow a way of looking at it. There is a clear social issue at stake here too. Young married, professionals are moving out of Jerusalem, they are being increasingly priced out of the market by foreigners for whom an extra few thousand dollars is (relative) peanuts. To stay you have to be either a) well off enough to compete (yeah right!) or b) really committed to staying in the city and prepared to make significant compromises on the size, quality and location of your apartment. (All the while accepting that your friends have got far more for their money in places like Modiin).

Jerusalem is being drained of 'new' blood, workers, children for the schools, participants in all the various social activities from cheese and wine evenings on Emek Refaim to Judo classes and shiurim. All in all this adds up to a less vibrant, less varied city.

Obviously this isn’t solely due to rich foreigners, but it seems to me the Zionist thing to do is surely not add to the problem.

Yellow Boy

4:47 AM  
Anonymous Anonymous said...

yellow boy,
well if enough leave, demand will decrease, a decrease in demand will lead do a decline in prices.
additionally, people do not want to own homes in empty neighborhoods so americans will stop buying home in such neighborhoods and present owners will sell to try to find in different areas. this will further depress the real estate values. when prices decline sufficiently, people will start moving back to jerusalem and the cycle will repeat itself.

8:28 AM  
Anonymous Anonymous said...

Anon,

1)The foreigners don't care about empty neighborhoods because they are only there for the chagim.

2)The neighborhoods are in demand for the foreigners because they are close to the Old City and the hotels and Shuls etc. frequented by tourists. This will not change, regardless of prices or anything else.

Essentially though you are repeating the attitude I was troubled by i.e. this is a purely economic matter. The fact that Jerusalem is becoming less vibrant, less diverse, poorer, less 'Israeli', in some areas a ghost town doesn't seem to bother you in the slightest. As a resident of Jerusalem, and as someone who wants to remain a resident of Jerusalem these things DO bother me. As I they should anyone who cares about the city.

YB

3:10 PM  
Anonymous Anonymous said...

anyone who cares about the city must share the same sentiments as you?

5:43 AM  
Anonymous Anonymous said...

Anon,

I actually don't understand your response. Please clarify.

YB

6:36 AM  
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10:18 PM  
Anonymous Anonymous said...

If anyone of these house owners is looking for a house sitter, my wife and me will be more than willing to help. We just married and we are trying to save enough money to buy a place of our own in the Jerusalem surroundings. To contact me: www.volcoff.com/housesit/

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