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Housing: Housing--Key Component of Inequality Among Israeli Households.

A. Ownership

Ownership of a home provides a family with stability and security. A home is also an asset--often the main financial asset of a family.

In 2016, 72.6% of Israeli households owned at least one home. This average, however, conceals large gaps: 90.8% of households in the top quintile (income deciles 9 and 10) owned at least one apartment, compared with 84.4% of households in the fourth quintile, 78% of households in the third quintile, 69.3% of households in the second quintile, and 53.7% of households in the bottom quintile.

A home is not just a roof overhead and a possession--it can also be a financial asset; 9.7% of all households in Israel own at least two homes, most of these additional homes producing rental income or benefiting the owner from their increase in value between purchase and sale. "Investment homes" are the privilege of the affluent. In 2016, 29.1% of households in the top quintile owned two or more homes--compared with 1.6% of households in the bottom quintile, 2.5% in the second quintile, and 6.8% in the third quintile.
Homeownership by Households, 2016
In percentage by net income quintile per standard person

Quintile                        Of homeowners:
          Own no  Own at least  Own only  Own two or
          homes     one home    one home  more homes

1         46.3        53.7      52.1         1.6
2         30.7        69.3      66.8         2.5
3         22.0        78.0      71.2         6.8
4         15.6        84.4      71.6        12.8
5          9.2        90.8      61.7        29.1
Total     27.4        72.6      62.9         9.7

Source: Adva Center analysis of CBS, 6 December 2-17, Dwellings in
Israel 2016: Findings from the Household Expenditures Survey 2016,
Table 2 [Hebrew].

B. On-going housing expenses

Inequality is evident not just in homeownership, but also in ongoing housing-related expenses. The conventional wisdom is that a household should spend no more than 30% of its disposable income on housing for it to maintain a reasonable standard of living with regard to education, health, and leisure. (49) In practice, many households do not abide by this rule: In 2015, 27.8% of Israeli households spent more than 30% of their disposable income on housing (50)--most of these in the lower income deciles. For households that make regular rent or mortgage payments, the average expenditure on housing in the lowest income decile was 57% of their disposable income, and 41% among households in the second decile. For the third and fourth deciles, spending on housing was 34% of disposable income. The fifth and sixth deciles spent on housing sums that were closer to the amount considered reasonable--29% and 28%, respectively.

C. High-demand areas

The location of a home affects the social networking of a family, job opportunities for the adults, and the quality of the services available to the parents and children--education, health, and welfare. This is what underlies the concept "high-demand areas."

Purchasing and maintaining a home in a high-demand area (and not exceeding the 30% of income rule) is a privilege accessible only to those in the high income deciles.

In 2015, an average household in the fifth decile could afford to pay a monthly mortgage of up to NIS 2,776--this would allow it to purchase a home at a maximum price of approximately NIS 718,000. A similar calculation for the seventh decile projects that the maximum price of an affordable home for these households would be one million shekel. (51)

Households in the lowest four deciles that cannot make the down-payment of 25% of the sale price would not be able to afford a three- or more room apartment anywhere in Israel without exceeding the 30% rule. Households in the fifth and sixth deciles have to make do with a three-room apartment distant from the high-demand areas--the north, south, Haifa, or the Krayot --and even these on condition that they have the wherewithal to make a down-payment of NIS 180-205,000.

This means that for 60% of the Israeli population, purchase of a home in a high-demand area without significant equity capital of their own will adversely affect their standard of living due to the heavy burden of mortgage payments.

Even for families in income deciles 7 through 9, if they are unable to make a down-payment of 25% of the sale price, they will have a hard time finding an apartment in the high-demand areas of central Israel and Jerusalem.

In fact, only families in the top decile can afford to purchase a three-room apartment in Tel Aviv, or a four-room apartment in Gush Dan or Jerusalem, without their standard of living being adversely affected, i.e., without spending more than 30% of their net income on housing.
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Title Annotation:WAGES
Publication:Israel: A Social Report
Date:Jan 1, 2018
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