For Affordable Housing, Move to the Israeli-Occupied West Bank!

By Frank Collins

While many Americans are looking high and low for scarce affordable housing, the Israeli government is offering thousands of highly subsidized inexpensive housing units in the occupied territories for sale at low prices to Israeli Jews. However, apart from a minority who want to settle in the occupied territories for ideological reasons, few established Israelis and even fewer newly arrived Jewish immigrants want to move there. The scarcity of jobs in the territories and the difficulties of commuting to employment in Israel from the Jewish settlements are only two of several reasons for the lack of enthusiasm with which most Israelis view life in the territories.

Nevertheless, the very low prices of housing in the West Bank makes a decision to stay and compete for scarce housing in Israel's major cities a very difficult one for many families. While a three-bedroom home may cost $175,000 in West Jerusalem, a small three-bedroom house can be found easily for $50,000 in the occupied West Bank, and a large three-bedroom house in the West Bank within commuting distance of Jerusalem costs only about $100,000.

Apartments in Jerusalem cost an average of $118,000. Prices are equally high in most of central Israel, even for old housing.

Confiscating Land Helps Keep Building Costs Low

Prices are low in the occupied territories because building costs are low. One reason is that most of the land on which the settlements are being built has been confiscated from its Palestinian owners by the Israeli government, which then sells it to Israeli developers for little or nothing. Further, the Israeli government, and not the developers, is paying for the infrastructure of roads, sewage systems and utilities being constructed in the West Bank. Such facilities, incidentally, cost the Israeli government considerably more to build in the mountainous West Bank than in Israel proper, much of which lies along the coast.

The gigantic housing program focuses not only on the occupied West Bank, East Jerusalem, and Golan Heights, but also, within Israel's pre-1967 borders, the Negev desert and upper Nazareth, rather than on central Israel where Israelis want to live. Together with the drastic drop in Jewish immigration from the former Soviet Union (from some 30,000 per month in late 1990 to fewer than 5,000 per month in 1992), the result is that 13,000 of the newly constructed housing units, mainly in the Negev desert and upper Galilee, are standing empty at the present time. In fulfillment of its promises to developers, the government has bought back these units at a cost of $1 billion. A plan to rent the units is under attack because it would harm the sales of other unsold units.

This is not the only ill-conceived commitment undertaken by the Israeli government in the firm belief that the United States would provide both direct grants and loan guarantees for the Israeli housing program. Aside from special government commitments to new immigrants, the new housing is open to all Israeli Jews, rich and poor alike, and all mortgages for the housing are heavily subsidized. It is no accident that the terms of the government-subsidized mortgages amplify the price differential between housing in Israel and living in the occupied territories.

The subsidies are truly magnificent. Government adjustable rate 20-year mortgages carry an interest rate of just 4.0 percent, compared to 4.75 to 7.125 percent in the U.S. (There are few fixed rate mortgages in Israel, as their interest runs around 18 percent due to Israel's chronic high rate of inflation.) Twenty percent of the adjustable rate government mortgage is shielded from inflation. Should an annual inflation rate of 20 to 30 percent resume, the shielding of 20 percent of thousands of mortgages would be a boon to the home owners, but a great burden to the Israeli government. (In addition, one-third of the government mortgage automatically becomes a grant to the home purchaser after 15 years. At that time, the government will have to scramble for money to balance its books.)

The subsidies are truly magnificent.

Israeli government mortgage ceilings are set by very complicated rules. Applicants are classified according to whether they are new immigrants, whether husband or wife served in the Israeli army, how many children they have, and a number of other factors.

Above the set ceiling, the home buyers must apply to the bank for a second mortgage unless they have sufficient cash to pay the difference between the price of the unit being purchased and the ceiling set for the government mortgage. Although the interest on bank adjustable rate mortgages is set as 4.5 percent, only slightly higher than government loans, there are decided disadvantages attached to bank mortgages. A large part of the loan must be paid off within five years and the remaining balance paid within 10 years, making mortgage payments high in the first decade of ownership. In addition, five co-signers are required for every mortgage, each accepting full responsibility for loan repayment in the event of default. A new law eliminating the need for cosigners but at higher interest rates is before the Knesset, but its passage is uncertain at the date of writing.

Under such circumstances, the ceilings of government loans are critically important to home buyers. The lower the price of the home that is bought and the higher the mortgage ceiling, the smaller the sum to be financed through a bank. Consequently, the flood of new housing in the occupied territories, as intended, is attracting buyers who might not be able to buy in Israel with no such incentives.

There is one more incentive for buying in the occupied territories that will come in force with planned new legislation. The new law would provide higher ceilings for government mortgages in the occupied territories, but not in Israel except in the generally undesired development towns in the Negev desert and upper Galilee. For a typical Israeli family with three children, the ceiling would be raised to $49,586 from $44,215. If they are recent immigrants, it would be raised to $49,586 from $33,884, and if they are veterans, to $49,586 from $22,603. The higher mortgage ceiling would thus lower the amount to be raised in cash or through a second trust from a bank. It also automatically raises the amount shielded from the effects of inflation and the amount that becomes a grant in 15 years.

The true number of new housing units under construction in Israel and the occupied territories is difficult to ascertain. Numbers issued by the U.S. State Department, the Israeli Central Bureau of Statistics and by Ariel Sharon's Ministry of Housing all vary widely. According to the Central Bureau of Statistics, the number of apartment unit starts in the years 1989, 1990 and 1991 total around 147,000. This, plus an estimated 21,000 starts in the first quarter of 1992, based on last year's performance, yielded a grand total of 168,000 at the end of March. To this should be added an undetermined number of individual houses.

If the average cost per apartment unit is set at a modest $50,000, and its pro-rata share of new infrastructure is omitted completely, the Israeli government's total investment when the units are completed will be $8.4 billion, far above the $400 million in loan guarantees that were released in 1991 by the U.S. government. If the housing is finally sold, and the mortgages financed, the Israeli government and the banks will be relieved of much of this extraordinary financial load, in the absence of mass defaults. The figure of $8.4 billion, as the lower boundary of costs to complete the housing started before April 1,1992, explains the over borrowing by the Israeli government in excess of its budget.

This has been described in the Israeli press as not much better than just printing money. It also explains the "hard sell" that Israel has been exerting for $10 billion in U.S. loan guarantees. The consistent opposition by more than three-quarters of the U.S. public to the loan guarantees would almost certainly grow even higher if U.S. taxpayers were aware of the generously subsidized mortgages available to Jewish settlers in the Israeli-occupied territories, regardless of income, these far surpassing anything available to even the poorest and most needy Americans.

Frank Collins is a free-lance journalist specializing in the Middle East.