Regulating Demand or Supply: Examining Israel’s Public Policy for Reducing Housing Prices During 2015–2019

The considerable rise in housing prices in Israel from 2008 to 2018, after the stagnation (and drop) in their prices in the early 2000s, placed concern about a real estate bubble in the Israeli economy on the public agenda. This study examines the effects of Israeli public policy on the real estate industry in general and on housing prices in particular during 2016–2020 to try to determine the most efficient way to regulate housing prices in an economy whose demographics create a gradually increasing natural demand for housing. Is it desirable to promote policy steps that act to curb and regulate demand, or would it be more efficient to promote a plan to increase the supply of housing? The findings show that the public policy formulated and implemented in Israel in these years did not achieve its long-term goal of reducing housing prices; rather, it only halted the price rise in the short term. The policy was clearly affected by shortsighted political considerations. It is therefore possible that the choice between regulating demand and regulating supply in the housing industry may in fact reflect the choice between the wide public interest and the narrow personal interest of policy designers.