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May 20, 2015

Kahlon wants to control the private rental market

I am no economist, but it seems to me that Kahlon's plan that will meddle with the free market is a bad idea and will backfire.

Kahlon announced his first law proposal being the "Fair Rent Law". Kahlon is focusing on trying to bring housing costs down, and with this bill he is focusing on rental prices.

The idea of Kahlon's proposal is that rental prices would be standardized, and landlords would be limited in their ability to raise rent - once a renter signs on an apartment, the landlord will not be allowed to raise the rent for a period of three to five years, though the rent could increase as it would be tied so some housing market index, or a flat 2% per year.

It seems to me, in my non-expert opinion, that this is meddling in the free market. If landlords cannot charge the rent they want, and cannot raise rents when values go up, when supply is down and when demand is high, they won't invest in real estate.

Perhaps landlords will decide to sell their apartments, with their rental income limited, and that will flood the housing market and bring prices down. Maybe that is really behind Kahlon's plan.

I think the market should dictate what landlords can charge. If a landlord charges too much, he wont find a renter.

I have no problem with his ideas of taxing rental income from the first shekel. I don't see why I need to pay taxes on my income from the first shekel but landlords do not need to. So I am fine with that. They should pay taxes on their income like everybody else. That is not meddling i the market.

Telling landlords they cannot raise the prices, despite an apartment increasing in value due to local market forces seems unfair to the landlord.

Kahlon should increase the number of public housing units available where the government can establish rent control. I don't think he should meddle and control rental prices in the private market.

what do you think?

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  1. I agree - not to mention that, since the demand for apartments is so high, there is virtually nothing stopping the landlord from raising the rent under the table. As far as taxing rental income, however, that proposal seems to ignore the rather common situation of someone who owns a single apartment and for whatever reason rents it out and rents somewhere else. In this case the rent is not really income - I wonder if the proposed law makes an exception for such a case?

  2. In my non-expert opinion, tying the allowable rent increase to a housing index would address (if not perfectly) the issue of not being able to raise rents despite rising housing prices.

  3. it seems to me the housing index is an average of some sort, in a local market a landlord might be able to do much better than the overall index.

  4. Rent control has been tried many times in America. There is broad consensus from both liberal and conservative economists that rent control does not work as it winds up decreasing housing supply as their is less incentive to invest in constructing new buildings or repairing old buildings. When housing prices are high that means that there is too little supply in relation to demand. What is needed is to increase supply, but rent control decreases supply. There are many liberal politicians that for political reasons are for rent control - but even the liberal economists say that rent control does not work.
    The only real solution to the housing crisis in Israel is to increase supply by encouraging the building of new apartments and houses. An increase of supply in relation to demand will decrease housing prices - that is simple supply and demand economics.
    chaim yankel

  5. I really thought that the one and only good thing about Kachlon was that he understood how the economy works, I guess I was mistaken. Hope that he enjoys his party's single term in office (however long it will last)

  6. They tried this for decades in NY. While it helped a few individuals, it also reduced the incentive for people to build new apartment buildings, thereby reducing the supply, and raising the overall rents for everyone. A good idea on the surface,, but with unintended consequences.

  7. I think Rafi is right in that the ultimate goal is to provide incentive to sell properties owned for additional income. As to the side effect of reducing new building, in state-controlled Israel it should (could) be easier to get new housing projects going at the same time. That, to me, seems to be Kahlon's plan - will it work or not...?

  8. On a country-wide scale, supply may go up if there is no rent control, but the situation in BS shows that it doesn't help established neighbourhoods at all. Now that Gimmel is in full swing, prices in Aleph are sky-rocketing. 2-3 room apartments going for 3500+. As little as 2.5 years ago, when I made Aliyah, prices were much better. 3-4 room apartments in the 4000 range.


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