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The Research Department Conference on the Housing Market, held today, addressed various aspects of the housing market, from macroeconomic perspectives to microeconomic impacts on various population groups.
The conference featured the presentation of five papers written by researchers from the Bank of Israel's Research Department, a lecture by Ms. Michal Frank, a senior advisor at the Tekumah Administration, and a panel discussion on aspects of housing market policy with experts from academia, the construction industry, the public sector, and the financial sector.
Bank of Israel Governor Prof. Amir Yaron opened the conference by discussing the complexity and uniqueness of the housing market in Israel, especially in recent times. The Governor noted that the Bank of Israel extensively addresses the housing issue through two main channels. The first channel involves conducting in-depth research and analyses of the housing market as part of its role in managing monetary policy and as part of the Governor's role as Economic Advisor to the Government. The second channel involves supervising the banks’ activities in the housing market as part of its role as the banking supervisor.
Dr. Adi Brender, Director of the Research Department, moderated the professional panel and, in his opening remarks, addressed the housing market’s main characteristics in recent years, particularly developments since the outbreak of the war about a year ago. The panel’s participants—Prof. Danny Ben-Shahar, Head of the Alrov Institute at Tel Aviv University, Alon Kol Kreiz, a research economist in the Economics Department at Bank Leumi, Raul Serugo, President of the Association of Contractors and Builders of the Land, and Dror Feldman, head of the mortgage arm at Mizrahi-Tefahot Bank—discussed the various challenges characterizing the housing industry over time, especially in the past year.
Ms. Michal Frank, a senior advisor at the Tekumah Administration, stated: “Alongside the return of 85 percent of the residents to their homes, we are focused on building an economic infrastructure that will turn the area into a regional growth center, including developing the housing market. By encouraging investments in infrastructure, creating quality jobs, and supporting small and medium businesses, we understand that the success of the housing market is closely linked to overall economic growth and community resilience. Our effort is also invested in creating employment opportunities in technology, manufacturing, and agriculture, alongside developing transportation and incentives for entrepreneurship and innovation. We aim not only to return residents to their homes but also to build a region that will attract new populations and preserve existing communities, while creating a stable housing and economic infrastructure over time.”
The studies presented at the conference addressed a variety of issues related to the housing market.
A study by Alex Ilek, Yaakov Chen-Zion, and Nimrod Cohen: “The Impact of Monetary and Macroprudential Policies on the Housing Market in Israel: Analysis Using a DSGE Model”
This study uses a structural model to examine the impact of interest rate policy and mortgage size (LTV) restrictions on the housing market. The research finds that restrictive monetary policy has a moderating effect on housing prices, but in the short term, it contributes to an increase in real rental prices. It also finds that stricter macroprudential policy (lower LTV) is effective in reducing the level of debt in the economy, thereby helping to minimize the risk of a default crisis. However, the impact of this policy on home prices is small, and in the short term, it may even push up home and rental prices. This is because financially constrained households buy fewer homes for ownership and therefore rent more, increasing the attractiveness of buying homes for investment.
A study by Yael Elster (University of Haifa) and Noam Zussman: “Minorities and Home Prices: Evidence from Israel”
This study examines the impact of home purchases by minorities[1] on home prices in residential buildings (in Jewish neighborhoods). It found a 2–3 percent decrease in home prices after the first purchase of a home in a building by Ethiopian or Haredi minorities, and about a 10 percent decrease in prices after the first purchase by immigrants from the former Soviet Union during the immigration wave from there. No impact was found on home prices after the first purchase in a building by a person from the Arab community.
Adi Finkelstein presented a study on “The Impact of Regional Tax Benefits on the Choice of Residential Location”.
This study examined the relationship between income tax benefits given to localities in the periphery and the employees’ decisions regarding their place of residence. According to the study’s results, the migration rates of affluent employees to localities that received benefits starting in 2016 increased in the five years following the expansion of eligibility, but no change was found in the departure rate from these localities. In addition, a negative impact was found on net migration to localities in close geographic proximity that did not receive benefits. The results are mainly due to Jewish localities that received relatively low benefits, meaning those that are less peripheral and socioeconomically stronger.
A study by Gal Amedi: “Determinants of the Public Transport Accessibility Premium”
This study uses granular data on the national transport network, travel patterns, and rental prices from online advertisements to find that the “public transport accessibility premium”— the amount households are willing to pay for good public transport in their residential area—is higher in more urban areas. It also finds diminishing marginal utility from public transport, meaning households are willing to pay less for additional services in areas where accessibility was already good. Additionally, there is evidence of a higher premium for rail accessibility than for similar accessibility levels provided by regular bus services.
A study by Inbar Bahat and Yonatan Benchimol: “The Impact of Press Sentiment on Local Housing Markets”
This study uses advanced machine learning methods to analyze the impact of the press on housing markets, and finds that mortgage-related media articles have a greater effect on housing prices than housing-related media articles. As the frequency of coverage on housing and mortgage topics increases, housing prices tend to decrease. However, as the tone, meaning the nature of the coverage, becomes more positive, housing prices tend to rise. This effect is stronger in cities with less flexible housing supply.