Minister of Finance Yair Lapid's plan to build 150,000 rental apartments will cost NIS 50 billion, according to a study by "Globes". Although the housing cabinet approved the plan in mid-November, including the establishment of the new government company for the plan, part of Yesh Atid's election platform, but one subject has not come up either at the cabinet meetings or in Lapid's statements about the housing shortage - the plan's cost and how the government will budget it. Decisions by the housing cabinet, the Ministry of Finance, and the 90-Days Team also fail to provide numbers.
There has been no mention of compensation for the owners of farmland who agree to sell their land to the state within a short and predetermined timeframe. There has been no mention to date of the necessary return on investment for the rental projects, below which the government will have to provide contractors with a safety net.
Many parties in the real estate industry do not believe the rental housing plan at all. Contractors regret that no one consulted with them in drawing up the plan, assessors call it "hallucinatory", mayors say that without their collaboration it is irrelevant, and the Ministry of Environmental Protection and environmental organizations are protesting the expropriation of open spaces. The list goes on.
Billions in cost before even the first apartment
The 150,000 rental apartments plan will need around 30,000 dunam (7,500 acres) of open and public land at a minimum, on the basis of current housing density standards. This land, mostly farmland, is owned by various landowners, and the government will have to purchase it pursuant to the law. "Purchase" is the wrong word in this case, and "expropriate" might be better. Both the Ministry of Finance and the 90-Days Team know this, so they've decided on a different word "obtaining" - in other words, the landowners will be compensated at the going rate for farmland, or NIS 23,000 per dunam (NIS 92,000 per acre), provided they do not object and hold out for a higher price. In the absence of an increased compensation mechanism, the cost of "obtaining" 30,000 dunam of land is NIS 690 million. If we assume a cost of NIS 50,000 per dunam, the cost will rise to NIS 1.15 billion (not taking increased compensation into account).
The housing cabinet has budgeted the new government company NIS 8 million a year, or NIS 80 million over ten years. The average cost of planning a lot zoned for 500 apartments is NIS 400,000. The new company's budget, if used solely (and improbably) for planning, will allow for the financing of 200 plans over ten years, for a total of 100,000 rental apartments.
The land that the government will obtain and on which the housing projects are planned will be worth billions of shekels. Given the range of land values between central Israel and the periphery, we shall assume an average of NIS 250,000 per land per apartment - far less than in Tel Aviv, and higher than in the periphery, but about the cost in the outer suburbs of Tel Aviv.
On this basis, the value of the land transferred to the government under the rental housing plan is NIS 37.5 billion. Because the government plans to sell the land by tenders, using the Ministry of Construction and Housing and Israel Land Authority format of the past two years, the land will be sold at a fraction of its value, costing the government billions of shekels in revenues. To avoid the need for a return on investment safety net, the land will probably be sold for next to nothing in the periphery, and for almost nothing in central Israel.
The promised return on investment safety net will also probably cost a pretty penny. Assuming that half of the apartments - 75,000 - will be built in areas requiring exercise of the safety net, and assuming only a safety net of 1% of the average construction cost, the cost is NIS 468 million a year. This will amount to NIS 9.36 billion over the safety net's 20-year lifespan.
To sum up: the cost of the land will be NIS 0.69-1.15 billion; the new government company's operating cost will be NIS 80 million over ten years; NIS 30 billion in lost revenue from land sales (assuming at least some revenue from the sales); and NIS 9 billion for the return on investment safety net, the total cost of the plan will be NIS 40 billion in the best case, and NIS 50 billion under slightly higher, but not extreme, scenarios.
Real Estate Appraisers Association in Israel chairman Ehud Danus has criticized the plan at every opportunity. He says that this NIS 50 billion estimate does not include development and other costs, such as schools and kindergartens, or parks. "All of these will require an additional NIS 50 billion," he says.
Finance Ministry: There are no numbers
The Ministry of Finance did not respond to a query by "Globes" about the plan's budget, but a ministry official told the newspaper that, except for the budget for the new government company, no estimate for the government's expenditure on the plan had been made. "We're talking about the preliminary stage, and as we accumulate the land for projects, we'll budget the activity later on."
As for the guaranteed return, the official said, "No figure has been set or approved for the increased compensation. It will be set through legislation, and it may vary from lot to lot. There are no precise numbers for the guaranteed return either."
Published by Globes [online], Israel business news - www.globes-online.com - on December 2, 2013
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