Demographics and Housing Affordability in Israel Kobi Braude Bank - PowerPoint PPT Presentation

Demographics and Housing Affordability in Israel Kobi Braude Bank of Israel

Home Prices Rising Much Faster than Rents 160 150 140 Home prices 130 120 110 100 Rent prices 90 80 70 *CPI deflated, Dec. 2001=100 Source: Central Bureau of Statistics data and Bank of Israel calculations 2

Affordability, 2004-2014 Rent to income ratios, annual averages, 2004-2014 0.45 0.40 0.40 0.32 0.35 0.29 0.24 0.30 0.25 0.19 0.20 0.25 0.2 0.16 0.20 0.15 0.10 0.05 0.00 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Rent as share of wage per employee post Rent as share of gross household income Rent as share of net household income Years of income required to purchase a home, annual averages, 2004-2014 14 11.9 12 10 8.1 8.1 7.3 8 5.5 6.0 6.1 4.8 4.5 6 4 2 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Years of gross salary per employee post Years of gross houshold income Years of net houshold income Source: Weitzman Nagar, Bank of Israel 3

Real Home Prices and Real GDP per Capita (CPI deflated, index 1973=100, annual, 1973-2015) 250 Real Home Prices 200 150 Real GDP per Capita 100 50 0 Source: Central Bureau of Statistics data and Bank of Israel calculations 4

How Many New Homes Should Policymakers Aim for?  Price or rent objective  Affordability objective  Demographic need (  demand)  Assess demographic needs in the Jewish sector in recent years (Distinct & Distinguishable Jewish and Arab Sectors) 5

Assessing the Demographic Need for the Jewish Sector  Estimate housing density (adults/apt.) by age group (model 1) or by age group and marital status (model 2). (household surveys 2003-2013)  Apply density estimates to actual annual change in size of each group.  Obtain overall need for additional homes in that year. 6

Housing Needs per Capita - Unmarried Jews (Never Married, Divorced, Widowed) Housing - Unmarried Only Share Residing Persons/Apt. Effective Apt. Share Age in Apartment per Person Unmarried (1) (2) (3)=(1)/(2) 20-24 0.84 0.66 * 2.2 * 0.30 0.80 * 1.9 * 25-29 0.57 0.42 30-64 0.27 0.83 1.15 0.72 65+ 0.42 0.83 1.09 0.76 *Parameter not estimated from survey data. 7

Demographic Need and Actual Construction Starts, Jewish Sector units 55,000 Demographic Need 45,000 (2 Models` Average) 35,000 Apartment Construction Starts 25,000 15,000 Annual Gap (Need minus Starts) 5,000 -5,000 *Construction starts – Central Bureau of Statistics data 8

Demographic Need and Actual Construction Completions, Jewish Sector units 55,000 Demographic Need 45,000 (2 Models` Average) 35,000 Apartment Construction 25,000 Completions 15,000 Annual Gap 5,000 (Need minus Completions) -5,000 *Construction completions – Central Bureau of Statistics data 9

Real Home Prices , ( CPI deflated, 1973- 2016, monthly) index 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 Source: Central Bureau of Statistics data and Bank of Israel calculations 10

Concluding Remarks  High population growth  need to maintain high level of construction starts.  Current level of starts roughly in line with current demographic needs, at least in Jewish sector, yet some backlog;  Demand (thus prices and affordability) driven by additional factors 11

Concluding Remarks  To sustain high level of building starts (and acceptable affordability): need to increase density in cities, build infrastructure (mass transit systems)  Changing social norms and aging  adjust mix of apt. sizes; could help affordability  Plan in excess  Picture incomplete: needs and gaps in Arab sector 12

Thank You 13

Share Unmarried 30-64 Rising 0.29 0.27 0.25 0.23 0.21 0.19 0.17 0.15 14

Demographic Needs – 2 Models units 55,000 50,000 45,000 Marital Status Model 40,000 Age Groups Model 35,000 30,000 15