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.