Sunday, January 7, 2007

Low housing prices and high price of land

In today's real estate section of Haaret'z newspaper, Arik Mirowski reports that in Haifa land price changes do not reflect changes in the value of apartments. Land prices are steady at US$ 150 thousands, while apartment prices, especially in the better neighborhoods have been sliding for several years now. Mirowski does not provide an explanation. He raises a question.

As a possible explanation Mirowski suggests that land prices have a quality of options. As such land prices are subject to greater volatility than apartment prices. In Haifa they indicate that finally the housing market is likely to take off. The situation of relatively high land prices in the better areas of the city and stagnant housing prices has been going on for the last three years.

Here is an alternative explanation. For the last 15 years every attempt to generate a land use change and to provide the market with a housing product that was in demand faced a massive opposition from various "green" groups. The local planning board lacked political leadership and almost no significant project was approved in Haifa. Land developers are rare animals in Haifa. The rate of housing starts has declined and most importantly, new housing products do no correspond to demand characteristics.

In other words, there is pent up demand and no supply. Land prices reflect the pent up demand and the location characteristics of the better areas in the city. The existing housing stock does not match the demand requirements. Existing demand migrates outside of Haifa. As a result housing prices are stagnant.

The housing market in Haifa is waiting for a political leader who will bring back the construction industry and allow them to build the type of housing that people want to buy.

1 comment:

EclectEcon said...

This same situation persists in San Francisco, doesn't it, but with different results? Why the differences?