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Affordable Housing

 There is a way to provide good quality affordable, economically viable and maintainable social housing for rent, with minimal government involvement and no burden on the state budget.

Past attempts, such as by Amidar, have failed because they were based on the provision of cheap housing whose maintenance was dependent on state or municipal funding that was rarely forthcoming when needed. As a result, the properties often deteriorated into slums.

The recent disastrous proposal of the Israeli government whereby a speculator can submit the cheapest tender to build rental apartments on state-allocated land, which the construction company can buy at half price, will not solve the problem. (Other proposals also grant construction companies unnecessary benefits). Cheap, speculative building on cheap land can only result in poor quality apartments which, without guarantee of continual maintenance, will in turn lead to the creation of slum areas. Cheap is cheap wherever one goes. This is something that should be avoided at all costs.

Baron Rothschild ... initiated viable project

In 1887, Baron Nathan Meyer de Rothschild http://en.wikipedia.org/wiki/Nathan_Rothschild,_1st_Baron_Rothschild, who can hardly be called a socialist, initiated an economically viable project that was able to provide affordable housing for working class families in the East End of London, England, and to answer the demands of the large influx of Jewish refugees from Eastern Europe. Although far from today's standards, the housing provided was of higher quality than was common at the time. Each apartment had a bath and an indoor toilet. He set out to replace the poor substandard housing with tenements designed to house large numbers of the urban poor in relative health and comfort at affordable rents.

He did this by founding "The Four Percent Industrial Dwelling Company" that was designed to generate a four percent return on the shareholders' investment.

The Israeli social scene is quite different from the poor conditions that existed in London in the late nineteenth century. The high cost of housing here is exacerbated by the high cost of land. The comparative standard of living, education and expectations of the Israeli public seeking decent quality affordable accommodation are much higher, and their demands for social justice are not restricted to housing alone. Nevertheless, the provision of decent affordable housing for rent is an essential. The introduction of such housing will lead to lower rents countywide.

While housing is a national issue, it is in local areas that it manifests itself and so if the Israeli government, in combination with the municipalities and universities, were to follow Baron Rothschild's initiative, they too, could economically build affordable housing for rent by students and the middle and working classes without compromising ideological values. It is in the national interest for affordable rental housing to be available in all parts of the country to facilitate labor mobility.

The real solution for Israel should partially involve the private sector. Suitable state or municipal land should be allocated for rental purposes only. The designated land should NOT be sold to construction companies but should remain the property of the state or municipality, which should determine the rent levels. The construction companies should be asked to tender for the building of rental apartments that will be owned by an independent state-owned company or companies, to which the designated land will be leased for a nominal fee. The company will issue 4 % bonds or preference shares to the public, guaranteed by the Bank of Israel.

In order to maintain decent standards, the building tender should require the construction companies to build the best quality apartments within the fixed price set by the government or the municipality (not the lowest quality currently proposed by the government). The tenders should be won by the construction companies that provide the best value for money. By virtue of the Israeli public being the bond or shareholders in the companies holding the properties, it will be in their interest to ensure that they will be properly managed and maintained. Tenants, too, should have representation.

Here is a simplified example of the economic considerations: Excluding land, the cost of building a 100 square meter apartment today is in the region of NIS 500,000, which money will come from bond or shareholders who will receive 4 % on their investment. A reasonable rental charge for such an apartment is NIS 3,000 per month (NIS 36,000 per annum) which is about 7 % of the construction cost, leaving a positive margin of 3 % that will cover vacancies, maintenance, management and other costs and/or rent concessions. Both interest payable and rents receivable should be linked to the costs of construction so that rental levels will remain in line with changing conditions and the 3 % administrative and maintenance margin will ensure proper maintenance of the properties. (In reality, rentals will vary with the size and facilities and the actual costs of construction. For example, student requirements will differ from family needs).

This is a win - win situation all round. Dormant land will be utilized, Israeli investors will get a guaranteed reasonable return on their money (particularly those such as pensioners who are receiving little or nothing on their savings), jobs will be created, municipal taxes will be collected, the government's budget will not be affected, and above all, affordable housing will be provided to those in need, safe from greed and speculators.

There is no need to reinvent the wheel. Just take a leaf out of the Baron's book and proceed forthwith. 

 

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Thursday, 21 January 2021

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