Australia / Israel Review

Amotz Asa-El

It may be more Woodstock than Tahrir Square, but the energy springing from a protesters’ tent city along Tel Aviv’s fashionable Rothschild Boulevard represents economic, social and political realities that challenge Binyamin Netanyahu’s leadership in a way he cannot ignore.

Some 300 tents sprang up almost overnight under the trees lining the road between the national theatre Habima and the glitzy skyscrapers housing Israel’s major banks, all put there to protest spiralling housing prices.

The protest was started by university students who found rents in Tel Aviv unaffordable, but was then joined by young couples out to buy their first apartments. By Saturday, July 23, what began in Tel Aviv had spread east to Jerusalem, south to Beersheba, and north to Kiryat Shmona. What started as a hip scene led by liberally dressed young women was joined by black-capped ultra-Orthodox men. And by the evening of July 23, several dozen students were joined by an estimated 30,000 demonstrators who filled Tel Aviv’s Rabin Square. The protest initially had a carnival-like atmosphere – only to end with police having to clear busy intersections blocked by burning tyres and smoke grenades and arresting more than 30 activists.

The following morning, when leaders elsewhere in the world were responding to that weekend’s terror attack in Norway, Israeli Prime Minister Binyamin Netanyahu was talking to the media about housing prices.

Economically, the crisis is about fundamentals: there are more buyers than houses in Israel. The roots of this shortage hark back to the great immigration of the 1990s. This accelerated Israel’s demographic growth, which was high to begin with, given that birthrates in Israel have been, and remain, the West’s highest.

Israel’s population growth over the past 20 years of more than 50%, from 4.8 to 7.7 million people, placed steady pressure on the housing market, where average prices rose over this period by 200%. Yet something else has been at play besides demographics, which is why prices continued soaring even after the immigration wave ended a decade ago. Since 2005 the Central Bureau of Statistics’ key housing price index has soared from 178 to 285 points, and last year alone average housing prices rose 12%, while inflation was 2.7%. The number of years of average wages needed to purchase an average apartment has risen over the past four years from around 7.5 to almost 12.

Various symptomatic treatments aimed at cooling speculative demand – like new Bank of Israel regulations that limit the size of a mortgage to 60% of an apartment’s value and require mortgage banks to set aside emergency reserves equal to 0.75% of an extended mortgage’s value – have so far failed to depress prices, though demand for mortgages did decline. Evidently, the forces at play are beyond the capacity of a central bank’s tools, which are geared mainly toward treating cyclical trends rather than solving structural problems.

Netanyahu has actually voiced well-developed views concerning the housing market since his term as finance minister during Ariel Sharon’s government in 2003-2005. The way he saw it, there were too few apartments in the market because there is too little land available for development, and that, in turn, is because of what he sees as an anachronistic Lands Law that places 93% of Israel’s surface area under state ownership. The bureaucracy that manages all this real estate, the Israel Land Authority, releases portions of it to the markets only through 99-year leases.

Netanyahu’s analysis was that by artificially limiting and slowing the sell-off of undeveloped land, the government has been obstructing the property market’s work. His plan in the face of all this was politically courageous. The Lands Authority, he said, had to be dismantled and replaced by a new agency whose mandate would be not to manage state owned land, but to sell it to developers. A full 70% of Israeli land was to be offloaded this way, thus supplying in abundance the land whose shortage was fueling the consistent rises in housing prices.

This is what Netanyahu explained to numerous audiences prior to the elections of winter 2009, from which he emerged victorious. But with his Likud party winning only 22% of Knesset seats, he was compelled to assemble the six-party coalition he continues to lead. And to some of those partners, his land reform was anathema.

In the Labor party, many said accelerated land sales would benefit no one but wealthy property tycoons, while Netanyahu’s assorted Orthodox partners said it would violate the biblical verse that the Promised Land “shall not be sold for ever, for the land is mine” (Leviticus 25:23). Even within Likud, Strategic Affairs Minister Moshe Ya’alon warned that selling Israel’s state-owned land on the open market would expose it to a hostile takeover.

These forces, aided by conservationists in the left-leaning Meretz faction who warned of over-development, managed to derail the reform – reducing the planned privatisation of 70% of state-held land to a mere 4%, with even that to be implemented only gradually.

Netanyahu still tried after that to reduce the red tape that slowed approval of building plans. He also went along with assorted subsidy plans, most notably one led by Housing Minister Ariel Atias of the ultra-Orthodox Shas faction, which sees the government subsidise by NIS 100,000 (A$27,000) the construction and sale of each apartment in various poorer areas.

Such plans may or may not prove prudent, but they are not part of Netanyahu’s original vision, and in fact they negate it – rather than allowing market forces to satisfy demand, they interfere with the markets’ operation. That is why Netanyahu hastily told the press, the morning after the demonstration in Tel Aviv, that he will “within days” offload more land to the markets. What he did not explain was just how he would overcome the opposition that obstructed this same reformist quest back when he first introduced it two years ago.

In addition to trapping Netanyahu between his own and his partners’ economic beliefs, the housing protest has also manoeuvred him into a social crossfire. The apartment seekers who took to the streets, like the students populating the tent cities where the housing protest began, hail from the middle class. For Netanyahu, they are the heart and soul of his target electorate.

Netanyahu identifies with them not only socially, but also culturally. He relates much more closely to their relationship with Facebook than to the biblical quotes of his religious parliamentary partners’ or the socialist rhetoric of his coalition colleagues who hail from the Labor movement.

The social energy that has suddenly come to the fore of the political scene did not begin with the housing protest. A few weeks before it there was another consumer revolt, also driven by Facebook groups, and which won spectacular success, but in a way that left Netanyahu politically unharmed. In that case, the focus was the food sector, and especially Israel’s dairy industry, which is dominated by three companies.

After learning that the price of a standard container of cottage cheese had risen over three years by nearly 50% to almost NIS 8 (A$2.17), a Facebook boycott of cottage cheese quickly won 100,000 signatories, and then spread through the public like a wildfire. For several weeks, thousands simply didn’t buy the cottage cheese that otherwise is a fixture of an Israeli breakfast. The producers, having been caught effectively coordinating prices instead of competing, initially kept silent, hoping the public wrath would subside. But the outcry grew louder and the boycott spread so widely that supermarket chains began cutting prices just to get rid of the backlog. Ultimately, the three companies sheepishly surrendered and cut prices.

Economically, the dairy industry is different from the housing situation in that it is highly regulated, as all Israeli governments have made it a priority to protect the cattle growers and milk producers in hundreds of agricultural communities. Thus, the dairy sector is dominated by government-issued production quotas and regulations, while importing dairy products involves exorbitant tariffs. Socially, however, the so-called “cottage cheese” revolution gave consumers the sense of empowerment that now feeds the housing protest.

Politically, the cottage cheese affair was unthreatening for Netanyahu, as it was essentially about the conduct of private companies rather than the government. In fact, when Netanyahu responded to that crisis by hinting he might slash tariffs and thus expose local producers to competition with imports, he seemed to be successfully playing the role of benevolent arbiter in a clash between the middle class and the industrial sector.

This is not the case in the housing crisis. Though here, too, all agree his government merely inherited problems created by a succession of Israeli administrations, Netanyahu knows he must demonstrate to the younger generation and the middle class that housing prices will begin to decline. Increasingly, his coalition constraints are challenging his electoral interests as well as his economic convictions and social identity. Sooner or later, he will have to make some tough choices – or he might find himself as humbled as Israel’s cheese producers.