MICHIGAN'S #1
Too-Good-To-Be-True
Subsidies Are Problem
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1996 ELDORADO
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1 1996 SEDAN DEVILLE
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hile the high cost of
housing throughout Is-
rael is a burden on all
buyers, it is especially
heavy on new immigrants and
young couples who usually do
not have the financial capabil-
ity to enter the housing market
when their savings and earn-
ings are low and rental rates
and housing prices are high.
To assist this group, the Is-
raeli government provides rent
and mortgage subsidies, a pol-
icy which is formally supported
by all of the major political par-
ties in Israel. But, according to
a survey of Israel's housing sub-
sidies, these programs do not
only fail to solve the housing so-
lution for their target popula-
tions but, in fact, cause more
damage than good.
Conducted by Jonathan
Lipow, a policy analyst at the In-
stitute for Advanced Strategic
and Political Studies
in Jerusalem, the
study shows that the
primary beneficia-
ries of these pro-
grams are not the
immigrants and
young veterans but
relatively wealthy
Israelis and foreign
residents.
The mortgage
subsidy is either giv-
en in the form of
loans offered at be-
low-market interest
rates or a grant that
must be repaid if the
house or apartment
is sold within a spec-
ified time period.
The rental subsidies
come in the form of
a grant, covering a
six-month period.
These bank sub-
sidies are available
for up five years.
In 1995, the Israel Ministry
of Housing and Construction
spent $800 million on mortgage
grants, $1 billion on mortgage
subsidies, $330 million in rental
subsidies and $80 million in fees
paid to the mortgage banks for
administering these programs.
The total expenditures of $2.2
billion amounted to 3 percent of
the country's Gross Domestic
Product in 1995 while in 1996,
budget projections suggest that
housing subsidies will cost over
$2.8 billion.
Mr. Lipow says the grants
force an increase in demand
which effectively causes an in-
crease in housing prices, thus
offsetting the governmental ben-
efits.
"In effect, 'One hand giveth
whilst the other taketh away,"
he says.
According to Mr. Lipow, con-
sumers, and especially young
couples and new immigrants, do
not gain any direct benefit from
housing subsidies and, in fact,
are hurt since they are expect-
ed to pay for their share of the
taxes required to finance them.
In this respect, homeowners are
also harmed since they pay the
largest share of local taxes.
Supervisor of Banks Ze'ev
Abeles agrees that the benefits
of the attractive mortgage deals
have been offset by an increase
in housing demand that was fu-
eled, in part, by the mortgage
programs. However, he does not
recommend canceling the offers
but suggests making them
available to more people.
Mr. Lipow's report also shows
that housing subsidies have the
effect of pushing up rent costs.
As a result, people that cannot
afford to buy an apartment are
forced to pay higher rents, which
makes it difficult to save mon-
ey, and when they finally enter
the housing market to purchase
an apartment, they face high-
er prices.
Another group affected by
housing subsidies are real-es-
tate investors, both Israelis and
foreign. Foreign investors are
almost always beneficiaries of
the subsidy programs since they
do not pay any of the taxes re-
quired to finance these pro-
r--