Israel elections 101: Whiffs of 'It's the housing market, stupid'

In the United States and other developed countries, rising home values are usually seen as a measure of economic health and prosperity and bode well for incumbents.

But in Israel recently, the steady advance of real estate prices has become a political albatross that could threaten Prime Minister Benjamin Netanyahu in elections next month.

The Israeli leader is facing a public uproar after the state comptroller released a highly critical 294-page report Wednesday evening blaming his government for failing to spur enough housing construction to make up for a shortage of hundreds of thousands of apartments.

The result has been a 55 percent rise in real housing prices between 2008 and the end of 2014 that has squeezed middle- and lower-income Israelis.

One might expect that Israel’s March 17 general election would be influenced more by Mr. Netanyahu’s growing isolation over his policy toward the Palestinians or the unprecedented clash with the Obama administration over his planned address next Tuesday to Congress on Iran. But analysts say it’s the Israeli prime minister’s handling of economic issues and Israel’s rising cost of living that is his biggest vulnerability.

“What is striking about this election is that everyone is focused internationally on Iran and Netanyahu-Obama, but if you look at surveys that assess the Israeli electorate’s priorities, it’s the economy, and the ability to get by,” says David Horovitz, editor of the Times of Israel news website.

“It seems that economic issues are central to this election,” he says, “and here’s a report that’s pretty damning about the Netanyahu government’s failure to put into place more frameworks that would allow for more affordable housing.”

Housing has been a charged issue on Israel’s public agenda ever since a group of twenty-somethings pitched tents on a central Tel Aviv boulevard in the summer of 2011 to protest runaway rental prices. Eventually, hundreds of thousands of Israelis took to the streets in demonstrations that crossed political lines and focused on gripes that have put Netanyahu on the defensive over Israel’s high cost of living ever since.

Four years later, the report echoed much of the protester's accusations of government neglect. Though it doesn’t mention Netanyahu by name, the report faults his government for failing to identify the crisis for more than a year after taking office in 2009 and then for producing ineffective and unrealistic solutions.

Problems with Likud base

“The housing crisis threatens the economic resilience of households and strikes a blow at their standard of living … and there’s a threat to the stability of the entire economy,” the report said.

“The government and its ministries pursued a deficient national housing policy … taking improvised and unplanned actions,” it said. “Most of the decisions were never implemented or their implementation was delayed.”

Many economists blame the housing crisis on the vestiges of Israel’s socialist roots: The government owns 80 percent of the land in the country and monopolizes the real estate market. Planning processes are centralized, but mired in endless bureaucracy: the state comptroller’s report said it takes 11 years for builders to obtain permits to begin construction. 

The report potentially hits at a long-time trusted base for Netanyahu: Likud's moderate Sephardic working-class constituency, many of whom consider him a cold-hearted capitalist and elitist.

Already before the report was released, a group of prominent Likud activists from blue-collar areas had declared that they would not vote for the party in this election and said the housing report stood as a failing grade for his administration.

Iran mantra wearing thin

“The Likud is supposed to be a movement of values with a social conscience,” said Eli Moyal, a former mayor of the working-class town of Sderot who held public meetings with leaders of rival parties even though he’s a member of the Likud Central Committee. “If a report comes out like this, it’s disgrace. He should resign.”

Responding to the report Wednesday, Netanyahu insisted that the comptroller recognized that his government had made progress on housing, but he quickly pivoted to focus on Iran’s nuclear program, which he called “the biggest challenge that we face.”

A Facebook website entitled “Yes, but Iran” ridiculed Netanyahu’s response as using Iran as an excuse to stifle debate.

It’s an ironic twist for Netanyahu, who touted his degree in business management (from the Massachusetts Institute of Technology) and experience as finance minister as qualifying him to run Israel in the middle of the global financial crisis during Israel’s 2009 election. But for most of his six years in office he has focused on national security issues instead of the economy, even though low interest rates and a government bureaucracy sent real estate prices through the roof.

The Israeli prime minister has assiduously avoided discussion of the economy in the current campaign, and his party has been criticized for not publishing an economic platform. Instead he has focused on his upcoming speech in Congress.

Can Herzog do any better?

Though Netanyahu leads opposition leader Yitzhak Herzog of the rival Labor party in surveys about who’s best suited to be prime minister, a recent poll in the newspaper Haaretz showed Mr. Herzog holding a small lead on the question of which candidate is better suited to deal with the economy.

“In the last six years, this problem has been completely neglected, and has eradicated hope for an entire generation of Israeli youths to put a roof over their heads,” Herzog said at a Thursday press conference in which he accused Netanyahu of investing $2.5 billion in isolated Jewish settlements in the West Bank over six years. “If this sum was invested in housing, we wouldn’t be standing at this press conference.”

The housing report follows a week in which Israel’s media focused on another state comptroller report on bloated spending at the prime minister’s official residences. The focus on the two reports seem to have knocked Likud down several seats in election polls.

In the northern Israeli coastal city of Acre, Micha Ziton, a cab driver, suggested that the damage among Likud supporters is authentic. He explained that he used to vote Likud, but had decided it might be time to give Herzog an opportunity to lead the government.

“It’s time to give someone else a chance,’’ he said. “People are tired of the promises that [Netanyahu] made to solve the housing crisis. He didn’t do anything.”