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

Demographics and Housing Affordability in Israel

Kobi Braude Bank of Israel

70 80 90 100 110 120 130 140 150 160

Home Prices Rising Much Faster than Rents

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Home prices Rent prices

*CPI deflated, Dec. 2001=100 Source: Central Bureau of Statistics data and Bank of Israel calculations

Affordability, 2004-2014

3 0.32 0.29 0.40 0.19 0.16 0.2 0.24 0.20 0.25

0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45

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

Rent to income ratios, annual averages, 2004-2014

8.1 8.1 11.9 4.8 4.5 6.0 6.1 5.5 7.3

2 4 6 8 10 12 14

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

Years of income required to purchase a home, annual averages, 2004-2014

Source: Weitzman Nagar, Bank of Israel

50 100 150 200 250

Real Home Prices Real GDP per Capita

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Real Home Prices and Real GDP per Capita

(CPI deflated, index 1973=100, annual, 1973-2015)

Source: Central Bureau of Statistics data and Bank of Israel calculations

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)

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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.

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Housing Needs per Capita - Unmarried Jews (Never Married, Divorced, Widowed)

Housing - Unmarried Only

Effective Apt. per Person (3)=(1)/(2) Persons/Apt. (2) Share Residing in Apartment (1) Share Unmarried Age 0.30 2.2* 0.66* 0.84 20-24 0.42 1.9* 0.80* 0.57 25-29 0.72 1.15 0.83 0.27 30-64 0.76 1.09 0.83 0.42 65+

7 *Parameter not estimated from survey data.

Demographic Need and Actual Construction Starts, Jewish Sector

• 5,000

5,000 15,000 25,000 35,000 45,000 55,000

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Demographic Need

(2 Models` Average)

Apartment Construction Starts Annual Gap

(Need minus Starts)

units

*Construction starts – Central Bureau of Statistics data

Demographic Need and Actual Construction Completions, Jewish Sector

• 5,000

5,000 15,000 25,000 35,000 45,000 55,000

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Demographic Need

(2 Models` Average)

Apartment Construction Completions Annual Gap

(Need minus Completions)

units

*Construction completions – Central Bureau of Statistics data

Real Home Prices,

(CPI deflated, 1973- 2016, monthly)

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0.2 0.4 0.6 0.8 1 1.2 1.4 1.6

index

Source: Central Bureau of Statistics data and Bank of Israel calculations

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

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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

0.15 0.17 0.19 0.21 0.23 0.25 0.27 0.29

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30,000 35,000 40,000 45,000 50,000 55,000

Marital Status Model Age Groups Model

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Demographic Needs – 2 Models

units