BDI CODE 2014 - Israel's Leading Companies, Law Firms, Accounting Firms, Best Companies To Work For - page 382

382
construction
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The Construction Sector in 2013-2014
By: Eliav Benshimon, Director General
of the Israel Builders Association - Boney Ha'aretz
The construction industries and their related industries are the main
engines driving the Israeli economy. Some 300 thousand households
earn their living from the construction and related industries, when over
half of them are directly employed by the construction industry. The
construction and infrastructure sector consists of three main groups:
residential building, non-residential (rental real estate, commercial
areas, public buildings, etc.) and infrastructure. The annual volume of
investment in 2013 totaled NIS 108.1 billion, reflecting 10.3% of GDP.
This is a real increase of 8.3% compared to 2012.
Despite this growth, even in 2013, housing prices continued to increase. Housing
prices increased in 2013 by 6.3% and completed an increase of 80% since the
end of 2007. The primary reason for price increases is the large gap between
demand (following an increase in the number of households) and supply of
housing in the last decade (a gap of about 115 thousand homes, according to
the Ministry of Housing), which has led to pressure on the existing supply and
a significant increase in housing prices. In 2013, there was an increase of only
3.4% in housing starts, from 42.9 thousand homes in 2012 to 44.3 thousand
homes, a volume that is not sufficient to meet the increasing demand for
housing solutions. As long as supply will not increase by increasing the volume of
construction, the gaps in demand will increase, and prices will continue to rise.
It is of paramount interest for the Government to provide incentives for building
and infrastructure projects, and it must encourage the institutions to grant credits
in favor of these projects. In addition, the Government will only gain if it will
guarantee a number of preferred construction projects so that the amount of
credit extended will not be considered by the banks as sector credits. It would
also help if contractors were eligible to spread the payments of development
fees and levies payable to the Ministry of Housing and the local authorities,
and to reduce the scope of guarantees required. If the Government wants
to make it easier for the public seeking housing, and facilitate connection of
Israel’s center to its periphery to encourage living in the periphery and slow
the rise in home prices - it must act accordingly.
Eliav Benshimon
Director General,
Israel Builders Association
The Government must increase the amount of land planned and approved
by the planning committees, increase the speed of marketing planned and
developed land, improve the system of state land auctions, offer incentives
for urban renewal projects, and even act in the rental housing market. Among
the obstacles that the Government may need to attend to - the credit crunch,
and the shortage of skilled workers, including engineers and foremen. The
Government must reform the sector’s regulatory barriers that are responsible for
more than NIS 200 thousand being added to the cost of an average home over
the last decade. The Government should also promote a reform of planning and
building laws, make the management of the building permits committees more
efficient, and expand the volume of public building and infrastructure projects.
One of today’s major barriers, is a credit crunch that was created as the Bank
of Israel does not allow the banks to allocate credit to the construction and
infrastructure sector greater than 20% of the overall credit limit. Credit is also
choked for contractors whowant to build residential projects, and for contractors
that are required to provide guarantees for participation in tenders for public
building and infrastructure projects. The Supervisor of Banks should increase
the sector’s credit limit to 25%. In our opinion, the credit framework should
not include credits made available to Israeli companies for projects abroad,
and a separate credit framework should be made available for public building
and infrastructure projects.
We note that unlike the common norm, to promise and not to carry out, the
Government should not issue statements and declarations on its intent to
reduce housing prices significantly. Such statements contribute to market
uncertainty and "sitting on the fence". There is concern that in light of the
statements of falling prices, contractors will avoid buying land and starting
new projects, and so, effectively the housing supply will decrease. Even the
banks will be wary of extending credit in favor of capital projects, given an
increase in at-risk projects. If the Government settles for only declarations and
promises, 2014 will also see a decrease in housing starts, a decrease in supply,
rising prices and a housing shortage.
Housing starts and completions
Housing starts
Housing completions
Changes in housing prices over the last decade
7,791
13,000
12,000
11,000
10,000
9,000
8,000
7,000
6,000
5,000
4,000
2008/1
2010/1
2009/1
2011/1
2008/3
2010/3
2009/3
2011/3
2012/1
2008/2
2010/2
2009/2
2011/2
2008/4
2010/4
2009/4
2011/4
2012/2
2012/3
7,848
7,875
7,257
8,393
8,651 8,333
8,672
8,829
7,725
7,049
9,234
8,913
9,584
9,584
10,119
11,091
11,985
12,281
10,520
9,925
8,739
170,0
160,0
150,0
140,0
130,0
120,0
110,0
100,0
90,0
80,0
2002/1
2002/6
2002/10
2003/4
2003/9
2004/4
2004/7
2004/12
2005/5
2005/11
2007/11
2010/5
2006/8
2009/7
2008/9
2011/3
2012/6
2006/3
2008/04
2010/10
2012/1
2007/1
2009/12
2009/2
2011/8
157,7
1...,372,373,374,375,376,377,378,379,380,381 383,384,385,386,387,388,389,390,391,392,...480