Why Free Markets Will Make More Room In Israel

With the average price of a four-bedroom apartment in Tel Aviv coming to over $660,000 (2.25 million NIS), and after seeing a 12 percent housing price increase in the first quarter of 2011 alone, its no wonder Israelis are so disgruntled. While Israeli unemployment is at the low level of 5.67%, wages have been stagnant, and the average worker would need to labor for twelve years in order to cover the cost of a home.

It is a shame that the tent-dwelling protesters against high property prices on Rothschild Blvd. and elsewhere have the softness of heart that too often gets to the head. No doubt Likud MK Ofir Akunis was exaggerating when he claimed “part of the protest going on at the moment on Rothschild Boulevard is being driven by a gang of anarchists”, and that many protesters come from  “the adjacent Ahad Ha’am Street, where, as you know, the main branch of the Communist Party is located”. Yet it is true that over-represented at these protests are environmentalists and leftists that don’t realize capitalism is not what is breaking the Israeli working man. The vestiges of socialism in Israel are, and the only solution is simple and elegant: more freedom. Let us hope this new movement is not too hostile to that.

The first priority for those who want more affordable housing should be dismantling the relic of socialism that is the Israel Lands Administration. This state body owns and administers 93% of the land in the country, making it something that really belongs behind the Berlin Wall during the Brezhnev era. The ILA has released land very slowly to buyers, in order to obtain extremely high prices for it. Selling off most of the land in the ILA’s responsibility would see prices fall drastically and should be supported by all those who want to aid the working poor. Even the expectation of mass privatization of ILA holdings would likely see prices for current marketable properties plummet.

Something interesting yet relevant is that the land situation in Israel would be significantly worse without the economic struggle the kibbutz movement faced during the 1980’s. The debt crisis in the kibbutzim necessitated privatization schemes that permitted many of them to sell their lands, which ended up spawning many new housing projects. Privatization proved highly profitable to the kibbutzim on the narrow coastal Gush Dan region, where most of the Israeli population and economic activity is based. Many kibbutzim became suburban communities for the expanding cities of the Tel Aviv metropolitan area. In light of this, Israelis should consider the effect massive agricultural subsidies are having. They may be preventing kibbutzim from engaging in more economically useful activities.

A note to the Israeli environmentalists among the tent-dwellers: Many worry land privatization would see all the forests torn down for shopping malls and coffee shops springing up in every corner of every city park. I have seen the state of many nature reserves and parks in Israel and have been appalled, like many Israelis, at the amount of trash left by visitors. I even remember a Roman era theater near an archaeological park full of shopping bags, cartons and so on. Something like that would be unheard of in many countries. Ten years ago veterans of elite naval commando unit Shayetet 13 and their families were given compensation by Shaul Mofaz for the possibility that their training in polluted rivers like the Kishon had made them more prone to cancer. The fact is the ILA and state control have allowed this to happen. Private ownership of waterways and nature reserves (by an individual or even conservationist or sporting groups) would ensure greater incentives exist to guard against pollution, especially with the possibility of individuals taking legal action against those who do pollute. In the UK, fishing rights in rivers are privately held. The Anglers Co-operative Association has brought literally thousands of lawsuits against those who damage fish stocks and has been a powerful force in keeping British waterways cleaner than their Israeli or American counterparts.

More highways like the Ayalon and buildings like the Azrieli Center are the future for the Tel Aviv Metropolitan region.

I guarantee many of the tent-dwellers cling to sacred cows that harm their own stated agenda: more affordable housing. Israel is not a big place. Unfortunately, like a lot of countries in Europe there exists a bizarre aversion to building upwards. The norm for Israeli apartment complexes is that they are under nine stories. Tel Aviv may be bustling, but it is far less densely populated than Paris, London and other perfectly liveable cities. It could easily afford exceeding the currently accepted limits. Everybody loves New York, right? Look at the number of film and other artistic depictions of Manhattan. A city simply doesn’t need strict height limits to remain breathable or to retain character. Environmentalist organisations are once again major culprits in progress prevention. Many influential, dedicated organisations in Israel have campaigned against more road and highway building to outer suburban areas and towns, in the fanatical campaign against urban sprawl. They are helped by the perception that because Israel is a small country, it is critical to curb human development soon before all of nature is destroyed. Yet road projects that faced opposition on environmental grounds have taken significant population and traffic pressure off cities and opened up cheaper housing opportunities for city workers. The CATO Institute’s Randall O’ Toole has done great work exposing the farce that is anti-road, highway, car and urban sprawl fanaticism, as well as the constant push for alternatives such as light rail by urban planners.

Finally, and this will be highly contentious, is that immigrants deserve some blame. Tel Aviv’s southern neighborhoods, rough around the edges but historically a source of cheap apartments, are now a haven for illegal African migrants. Controversy reverberated around the world when the decision was made to deport many children of these workers who were raised in Israel. The Israeli left championed the rights of asylum seekers and migrant workers to remain. The thousands of Sudanese people that call southern Tel Aviv neighborhoods home have certainly increased costs for the natives. That factor cannot be ignored. To be fair, a similar effect has been seen in Mamilla in Jerusalem and Beit Shemesh, where many prosperous Anglos have purchased holiday homes. The solution to these problems does not rest exclusively with protectionist measures, however, but once again primarily putting more land on the market.

Now it is more important than ever for Israelis to embrace the market, not the state.

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About Cranky Notions
Reactionary. That fella from the Norris scandal.

17 Responses to Why Free Markets Will Make More Room In Israel

  1. Damn straight. Awesome article; thanks.

  2. And I’m not sure, but given that the ILA leases out land for a half-century or a century at a time, I assume that this causes enormous malinvestment and mismanagement. How can you possibly know now, what the land will be worth 50 years from now? Heck, in a socialistic system, how can you even know what the land is worth NOW, given lack of price signals? Sheesh, a socialist economy cannot know what anything is worth NOW, but the ILA thinks it is so smart that knows what something will be worth a century from now. Idiots.

  3. Friend of mine on Facebook (“David R.”) left a good comment: “The gov’t wants high housing prices because it gets a nice share of tax revenue for real estate taxes. The more prices bulge, the more the gov’t coffers fill up. The real problem is the Israeli welfare state that costs so much to maintain and thus requires the tax money from real estate, et al. These student protestors want lower prices, but they dont want to give up their subsidized college, their state health insurance, etc.

    • Thanks for commenting, and for the very good points. The ILA is indeed usually only permitted to lease land for periods of 49 or 98 years (because periods of 48 and 99 years would be silly).

      Being in Ireland during the property bubble (which was a bit like America’s, but on speed) I saw the very same problem you mention. The Irish government in a series of populist measures cut income taxes but maintained an extensive welfare state, paid for by property taxes like stamp duty and so forth. The 53% decline in construction in a single year left the state in a perilous fiscal position.

      • Thanks for the links. I had not looked at Manhigut Yehdit economic policies much before (Feiglin is still banned from this country, don’t you know). Oh, and for the Walter Block piece. I have done some research into the free-market ideas of Azpilcueta and the Late Scholastics, as well as Taoism on foot of Murray Rothbard, but my Talmudic knowledge is undeveloped. I find it very important to locate these ideas in the religions so one can really speak to their adherents, and of course it is also just interesting to see so many alternative, often ancient, perspectives on the big issues.

        I took a very short course on Judaism and Capitalism this year at the London School of Jewish Studies, though I found it a bit too drenched in Kabbalah, an area I tend to avoid like the plague. Still, I picked up quite a bit. I have heard Yeshayahu Leibowitz was a bit of a free-marketeer, but I don’t see much in his books available in English (Leibowitz is someone I have really been devouring recently, to the extent I might just call myself a Leibowitzian). Supposedly Leibowitz wrote a lot about political corruption and the woeful economic policies of the 1950s and 1960s in Israel in a publication called Beterem. I would love to find that material in English.

  4. mzk1 says:

    In my personal experience, I think a lot of evil is caused by that relic of socialism, the Renter Protection Act. It’s similar to those European countries where no-one hires (they contract) because the employees have too many rights. I think this is why we have no apartment houses in the American sense, just condos. The result is that you rent from a non-professional individual, and if he wants to sell it or give it to his son-in-law, out you go. This recently happened to us (and we had a good landlord) and it wiped us out. You know how expensive it is to move continually, especially in a country where you own your own appliances, and where the RENTER is often obligated by the lease to paint the LANDLORD’s apartment?

    Ever see a lease? Paragraph 1: this is temporary; you are not under the Protection Act. Prargraph 2: ditto. Paragraph 3…. Requirements for guarantors, a month’s rent by the renter to the agent….. And these tent idiots want to STRENGTHEN the act instead of weakening; soon it will be impossible to rent at all.

    Regarding building height, please note that, on the other hand, the cities do not have a lot non-apartment-houses; this is unlike a lot of New York, outside of Manhattan (the latter is only around 25% of New York). Apartment buildings here tend not to have elevators; even with them, living in higher stories is difficult for Sabbat-observers (Shabbat elevators are a bit of a grey area) who make up a substantial percentage of the population.

    The one role for the government I think is in encouraging smaller apartments. Everything I see being built is “yokrati”, luxury, 4-5 rooms (3-4 bedrooms) and up. We also need a relaxing of the over-regulated building rules, something to cure the populace of its extreme environmental wacko-ism, and an stop to foreign pressure that has affected building in Jerusalem and the existing settlements. (I can dream…) There really is plenty of room.

    • mzk1 says:

      By the way, one solution is that because many areas are mountainous, buildings are often built with the entrance partway up (say on the fouth floor), so that you don’t antually have to walk that many flights of stairs.

    • Very fascinating, Thank you.

      Regarding “[t]he one role for the government” you see, however, I would say this: firstly, we already know the government is corrupt and incompetent, so why will it do any better with your proposal, than it is already doing? Secondly, even if the government were to be honest and competent today, and successfully implement your proposal, who says that the next administration will continue to be honest and competent?

      In other words, the biggest problem, I think, with any proposals for government to do this or that, is that they assume the government is disinterested, which is never the case. As James Madison put it, if we were governed by angels, we would not need limitations on government, but that is not the world we live in. You have to ask, not what the government ought to do (as political philosophers ask), but rather, what will government do (as Public Choice and Austrian economists do, studying human nature and making predictions of what politicians will do, not what they ought to do).

      • mzk1 says:

        Actually, I don’t think the government is corrupt and incompetent. It is something of a national pasttime to claim this, but I abstain.from it. For that mattter, I don’t think the bankers were any more responsible for the crisis than the borrowers. And, by the way, the beauracracy is much better than it used to be.

        I consider myself a tea partier in the US, but Israel is so far from this with no real constituency for it (although I did once hear some commentator use that term (mishteh teh) to refer to the government), that I am more likely to compromise and look for ways to intervene that do not forget that one can, at the end, no more violate the laws of economics than one can violate the laws of physics. Take a look at http://www.knessetjeremy.com to get an idea of the flavor of the goings-on in the Knesset.

        I may be completely wrong about the renting; it may be cultural. I am told that they tried it, and it failed. It would be nice to have more info; I am realtively new here.

        Oh, and thank you.

  5. mzk1 says:

    I was surprised at the comments regarding Prof. Y.L. My understanding was that he is an extreme leftist, and rather fringe from a religious viewpoint. I don’t think most of the religious community (of whatever sort) wants much to do with him. This is as opposed to the OTHER Prof. Leiboritz, his late sister Nachama, who is widely regarded both for her writings and her character. YL is sort of the pet Rabbi of the Nomanklantura.

    The standard Jewish teaching on economics is that the best thing is to set an personal example (“what’s mine is yours and what’s yours is yours”) – that socialism (“what’s mine is yours and what’s yours is mine) is the utopia of the ignorant, while the extreme free market (“what’s mine is mine and what’s yours is yours”, even on a personal level) is at best mediocre and at worst the “trait of Sodom”, which is “if I can’t have it, neither can you”. See Chapters of the Fathers, “four attributes of people”. One commentary (h/t to my Dad) connects this with the saying there, that the ignorant cannot be pious. (By the way, the enforementioned “trait of Sodom” is actually enforcible by Jewish courts; there is an entrie section of Jewish law giving owners of adjoining proprty right fo first refusal in buying land.)

    I also might mention that in my old community of Baltimore, the religious community certifies charity collectors. One rule, IIRC, is that they will not certify someone who is self-destructive.

    • I loathe to use such recent terms as ‘left’ and ‘right’ to explain the thought of Prof. Leibowitz, as such labels can do it no justice. I consider Leibowitz to have been the greatest exponent of the faith of Maimonides in modern times. If I had to label him in any way, I would call him a Maimonidean Rationalist. Another nice description might be that he was religious and Zionist, but not a Religious Zionist. He firmly believed in Jewish independence in the Jewish National Home, but gave the state no religious significance and advocated separation of religion and state (indeed, he said nothing is holy except God, and rejected the idea that the Jewish people were holy per se). I’ve heard Orthodox Jewish feminists deride him for his view that women performing the religious duties of men (like laying tefillin) is religiously meaningless, and Dati Leumi claiming he was something like a Jewish Arafat. Liberal Jews and Christians also referred to him as a kind of Jewish supremacist for his stark rejection of the idea of a shared ‘Judeo-Christian Heritage’.

      Of course he will in most circles be primarily remembered for his controversial political stances, some of which I would say went too far (like unilateral withdrawal from the disputed territories).

      Leibowitz loathed parasitism of all kinds, and when organizing a company of observant Jews for the Hagganah he did not appreciate the Rabbinic establishment shying away from addressing matters of halakhah in military activity. That they thought such matters should be left to the non-observant did not bode well for Judaism in the future Jewish state.

      This view of parasitism led him to campaign for economic reform in Israel. During the mandatory period, the political groups engaged in agricultural and other economic enterprises (particularly the Labour Party with its control of Histadruth). Monies coming in were channeled through the parties. This distorted the structure of the economy, particularly after independence. Leibowitz saw that enterprise in Israel was too dependent on the government, and agitated for the state to shrink away from controlling the economy in his writings, in order to create real and sustainable prosperity even if temporary austerity was a result (he felt that reliance on foreign assistance was a disgrace). He also campaigned against corruption, and chastised the government for not balancing the budget – he could certainly be described as a fiscal conservative at the very least.

      • mzk1 says:

        I will not try to get into the politics; your comments there were quite interesting and you undoubtedly know a lot more about this than I (which isn’t difficult). I did note that he is one of the few whose works are sold in general bookstores, which did not help allay my suspicions.

        From a religious viewpoint, I’ve never been able to clarify the issue, but I had the idea that he did not believe in the origins of the Torah, but felt one should keep it. I would love for someone to confirm or deny this. In that case, he would basically be a heretic according to traditional Judaism, and particularly according to Maimonides who was quite particular about this issue. (In modern terms, this would make him the equivalent of the “right-wing” Conservative Rabbi.) If I am incorrect (about his views), I would appreciate the correction.

        Interestingly, the view on the State you described would pretty much match the Agudah (voting Chareidi) view (I should know; I am one, as well as a professional computer programmer) after the Arab riots. (Even before this, when they were against the establishment of the state, they has a settlement fund.) (Regarding rabbis making decisions, this is generally done only if the person asking is actually going to listen to him; not to mention the necessity of having all of the information.)

        Anyway, thank you for your patience; I would be interested if you have any opinions regarding the reason we have no apartment houses.

      • I don’t believe Leibowitz ever deviated from the traditional Orthodox perspective on the Divine origin of the Torah. He believed that the Jewish religion is the commitment to observe the Halakha, and the sole purpose of the Halakha is the obey God. He was especially dismissive of the view of those who claim, like the Reform, that the Halakha is a kind of shell hiding/protecting some essential ethical core of religion, and regarded attempts to find the reason for the commandments as irrelevant and futile as they are beyond man’s understanding. Liebowitz placed huge emphasis on the service of God lishmah (for its own sake), and not for the sake of avoiding punishment or obtaining reward in this life or in the World to Come. He famously told a man who said he abandoned God after the Holocaust, “Then you never believed in God”. This was a typical blunt Leibowitz response, something that made people often characterise him as cold. He did claim worship ‘not-lishmah’ was acceptable, but inferior Judaism that should ideally be corrected.

        Your opinions on apartment buildings are quite correct, I believe, and you can see similar situations in countries that have the same kind of strong good-intentioned laws supposedly protecting tenants (making it difficult to become one, to boot). Another factor is simply that it takes far longer than it should to build apartments in Israel because of the bureaucracy. Israel is ranked ridiculously low among jurisdictions for competitiveness and ease of doing business in the construction sector (I once saw that it was around 121st place!). Its like some third-world socialist regime; Israel’s old laws make it a dinosaur among states in the OECD. There is another interesting factor. I have heard there are just under 150,000 vacant apartments in Israel (I’m not sure about other types of residential accommodation). Vacant buildings are exempt from certain property taxes. As much as I loathe to propose the closing of a tax loop-hole, I suspect this situation might be looked into in order to get some prospective tenants who need it into those apartments.

      • mzk1 says:

        Thank you for your comments regarding Prof Y.L., and for setting my mind at ease on that account. You can delete my comments on that subject if you like. (Please understand that I know of a case of someone who did in fact have such an attitude – in the introduction to a rather useful book this person wrote – so perhaps this was why I jumped to such a conclusion.)

        Regarding building, it doesn’t seem worse than say NY or NJ, but…

        I will mention something from my family. I have cousins from the midwest – several generations of midwestern religious Jews – whose cousins started a couple of well known midwestern (food-related) businesses. To avoid indentifying details and make a long story short, one of the business owners decided that America was no place for a Jew, and – relying on promises from the government – moved his large family and business to Israel in the bad old days of socialism. Because of the “crony capitalism” that goes with socialism, they were forced out of business by the government (or perhaps the histadrut?) and after going bankrupt, had no choice by to return to the US. Thank heaven those days are over.

        Personally, I think this country is proof of the success of the success of supply-side economics. I recall the days of inflation of over 100%; who would have dreamed that the shekel would one day be hard currency! Or that we would have a wonderful semi-private toll highway (route six). Even the beauracracy is better than it was. The tent people, like the OWS, are going in the precise wrong direction.

      • Wow. The story of your relatives helps explain the old joke often heard here in the UK (that the only way to make a million in Israel is to arrive there with two million).

        I’m always glad hearing how Israelis are so satisfied with Route 6. I believe that project faced a lot of objections on environmental and other grounds during the planning and construction process.

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