Nov 23

Written by: Dr. Ernie Moore
Wednesday, November 23, 2016  RssIcon


I remember standing in line at the grocery store in Jerusalem while a man tried to pay for his groceries. He went through no less than ten credit cards before he found one with enough on it to pay the twenty dollars or so necessary.

As anyone who lives in Jerusalem, or about anywhere in Israel, for that matter, can tell you, most Israelis live on massive credit. And when it comes to cash, that is another slap in the face. Banks charge their depositors for MAKING DEPOSITS! Then they also charge for virtually any interaction with the bank. It is oppressive to say the least.

Our first apartment (in the picture above) was in a brand new building. We were the first tenants to move in. (I remember sleeping on the floor in 40 degree weather under our coats to stay warm.) Because it was new construction and the builders wanted to get people in, the prices were unbelievably low. We paid $700 a month when shabby apartments off Golomb Street were going for twice that much.

People soon moved into the building and the topic of conversation was always the low price. Fast forward to today. The same apartment now rents for over $2000. And that is not unusual.

I once rented a bedroom, living-kitchen-bath apartment for $1000 in a very seedy neighborhood. In fact I had to put a towel under the door to keep dirt from blowing in! That, too, has now doubled in price.

Israelis watch new construction like the hotels and apartment buildings go up knowing that they will never be able to afford the least expensive apartment or room.

You may ask, then what do they live in? Typically in buildings that are below standard, in neighborhoods with infrastructure that looks like Bethlehem before the Pope came for his visit.

(That means that you could lose a VW in the holes in the streets, filthy beyond imagination and little hope for improvement. When the Pope visited, massive improvements fixed the areas he would visit. They are now back to normal.)

We have long written and spoken about the need for middle and low cost housing for the folks who are just plain working people to no avail. So they go further and further into debt.

A used car in Israel will sell for two or three times what it will bring in the US. But here’s the rub. You cannot import used cars for sale.

This all brings a sense of hopeless futility to the Israelis. They work hard, endure the ever present threat of war, knife and gun attacks and a society that has the very rich and the poor. And Israelis are yet some of the most gracious, steadfast and hard-working folks you will ever meet.

One of our early neighbors in the apartment building above had moved to Israel from Palm Springs, California. They made aliyia, became citizens, received a ton of benefits from the government early on. Later they used what savings they had to purchase an apartment of their own. It was run down, and they spent everything they had on renovations, worked hard, and struggled.

Finally they faced the facts. They could not make it in Israel. That meant moving back to the States. The great experiment was over. Thankfully they are now doing well. But the sad facts were that the system did not help these wonderful people.

Recently Simona Weinglass did a piece on housing and the cost of food. As you prepare for Thanksgiving in America we thought you might appreciate it.

By Simona Weinglass

Work hard at something people want or need, and with a little luck and ability your financial circumstances will improve over time. That’s been the social contract in many Western nations for the last half century or so.

But in Israel, as elsewhere, things have begun to change. A recent study by the Taub Center for Social Policy Studies in Israel found that real wages among non-government employees were similar to those in 2001, even though labor productivity rose 15 percent over the same period. In other words, the average worker has no more buying power than a decade and a half ago, despite producing 15% more.

Gilad Brand, author of the study, told The Times of Israel that these stagnant real wages are not because employers are failing to increase pay, but because two items have become disproportionately more expensive in Israel in the last decade and a half: housing and food.

“It’s very fashionable to say our wages are not rising, as if employers had taken the fruits of growth for themselves,” Brand said.

“That’s true in some countries, but in Israel it’s primarily due to the increased cost of housing and, to a lesser extent, food.”

Indeed, housing prices have risen 114% since 2007, and rents rose by 50%, while food prices have increased by 26% during a period of time when inflation as a whole was only 18%.

But if you drill down, said Brand, the real dividing line in Israeli society is between those who own their homes and those who do not.

“People who own their own apartment, and certainly those who bought their apartment before the big price spike that started in 2007, are doing okay. Their mortgage payments are low because of the low interest rates, and the high rents don’t concern them because they don’t pay rent.”

In fact, Brand points to a Bank of Israel paper from 2012 that showed apartment owners increasing their consumption in recent years while renters decreased their consumption.

“There is a pretty dramatic shift. The rise in apartment prices has really changed the distribution of income in the economy.”

As far as food is concerned, Brand says one reason for the spike in prices is due to food import restrictions imposed by the Health Ministry in 2004 after two babies died from consuming vitamin-deficient Remedia formula made in Germany. He believes another reason to be the purchase of the Club Market supermarket chain by Shufersal in 2006, as well as the 2007 purchase of a 56% stake in the Tnuva food manufacturer by the London-based Apax Partners investment firm, which led to a more aggressive pricing strategy.

“The food market is very concentrated. There are not a lot of imports and those that do come are through a small number of importers.”

Brand points out that in 2008 food prices rose all over the world, including Israel, but when prices fell globally, they did not fall here. Even after the 2011 social justice protests, which were nominally launched over the high price of cottage cheese, there was a slight dip in food prices but they then resumed their rise, said Brand.

“High food prices are like a regressive tax,” he said. “Families with lower incomes spend a higher percentage of their income on food, and are more sensitive to rises in food prices.”

Meanwhile, the rise in apartment prices adversely affects those who don’t own a home already or haven’t accumulated enough capital for a down payment. In Israel, where the typical down payment is 40% and an average apartment costs close to 1.5 million shekels ($390,000), accumulating enough money to purchase a home is a daunting task for the 32% of Israelis who don’t currently own one.

The result, said Brand, is a society where financial benefits go to those who already have capital, whether in the form of an apartment or savings. But if you haven’t accrued capital, your chances of doing so are small, he said. This upends the notion of social mobility, the idea that the average person can improve their financial circumstances through hard work and talent.

“The cost of living is so high it’s hard for a typical family to save much, and even if they do the interest rates are so low they won’t earn much on their savings,” said Brand.

“If you already have capital, you’re fine, but if you don’t,” he noted wryly, “you can always hope for an inheritance — or winning the lottery.”

Location: Blogs Parent Separator Ernie Moore
Blog Archive
Click on a date to view all entries for that date. Click on a month/year (below the calendar) to view all the entries for a month
<December 2018>
October, 2018 (1)
September, 2018 (1)
June, 2018 (1)
May, 2018 (2)
December, 2016 (3)
November, 2016 (5)
April, 2016 (1)
March, 2016 (13)
February, 2016 (13)
January, 2016 (13)
December, 2015 (14)
November, 2015 (14)
October, 2015 (13)
September, 2015 (10)
August, 2015 (12)
July, 2015 (12)
June, 2015 (15)
May, 2015 (11)
April, 2015 (12)
March, 2015 (8)
February, 2015 (7)
January, 2015 (10)
December, 2014 (11)
November, 2014 (14)
October, 2014 (21)
September, 2014 (23)
August, 2014 (24)
July, 2014 (24)
June, 2014 (11)
May, 2014 (12)
April, 2014 (28)
March, 2014 (33)
February, 2014 (26)
January, 2014 (24)
December, 2013 (29)
November, 2013 (31)
October, 2013 (33)
September, 2013 (32)
August, 2013 (31)
July, 2013 (33)
June, 2013 (35)
May, 2013 (34)
April, 2013 (31)
March, 2013 (37)
February, 2013 (25)
January, 2013 (32)
December, 2012 (38)
November, 2012 (42)
October, 2012 (39)
September, 2012 (49)
August, 2012 (44)
July, 2012 (52)
June, 2012 (42)
May, 2012 (45)
April, 2012 (29)
March, 2012 (33)
February, 2012 (34)
January, 2012 (36)
December, 2011 (47)
November, 2011 (50)
October, 2011 (42)
September, 2011 (63)
August, 2011 (59)
July, 2011 (45)
June, 2011 (37)
May, 2011 (54)
April, 2011 (46)
March, 2011 (53)
February, 2011 (45)
January, 2011 (45)
December, 2010 (48)
November, 2010 (51)
October, 2010 (42)
September, 2010 (60)
August, 2010 (51)
July, 2010 (52)
June, 2010 (51)
May, 2010 (35)
April, 2010 (11)
March, 2010 (1)
Search Blog