Solution to Jerusalem The Ghost Town — The Aliya Incentive Fund

As we gear up in Jerusalem for the holiday season of Rosh Hashana and Yom Kippur, we, the residents of Jerusalem, are looking forward to our streets being filled by many tourists as well the return of Jerusalem’s absentee home owners.I have written previously about non-residents driving up the cost of homes in Jerusalem dramatically and finding entire neighborhoods where the shutters are closed except around the holidays.

A few weeks ago, Netty Gross writing for the Jerusalem Report looked at the same issue from a different angle. Writes Gross,

“The foreigners responsible for what Tal terms “the new Jerusalem real estate juggernaut” are, in descending order, American (accounting for 45 percent of sales,) French and British Jews. “U.S. Jews, particularly the Orthodox, are falling over themselves to buy. There is a real shortage of large properties in the right neighborhoods” — which he defines as Talbieh, Rehavia and Sha’are Hesed, near the center of town, and the southern neighborhoods of the German and Greek colonies, plus Old Katamon and Baka. There is also high demand for other areas like Ramat Eshkol, in northeast Jerusalem, which is relatively close to the Old City and the Temple Mount, as well as to the courts of ultra-Orthodox hasidic rabbis and yeshivot in the Sanhedria, Ge’ula and Me’a She’arim areas.New Yorkers are the main American Jewish buyers of property in Jerusalem, says Tal, “because they are quick deciders and know what they want.” Another reason, he suggests, is that though prices are spiraling byJerusalem standards, they’re still dirt-cheap compared to New York. The price of a prewar Park Ave. co-op apartment — the rough equivalent in terms of prestige of, say, Jerusalem’s Jamal mansion — is $30,000-$40,000 a square meter, four to five times the going price in the Holy City.

The New Yorkers — particularly modern ultra-Orthodox Jews from suburban Monsey, and from New York, the Five Towns in Long Island — “are black-hat types but hardworking multi-millionaire businessmen and professionals, not like the poor Israeli ultra-Orthodox,” says Tal. “There’s the crowd that believes the messiah is coming and they want to be here for that,” and another segment that “just believes in investing in Israel.” Most of Tal’s clients are politically right- wing and have children who study or live in the city.

One of the most interesting aspects of the new boom is that wealthy ultra-Orthodox Americans now behave like jet-setters, says geographer Dr. Amiram Gonen, director of the Floersheimer Institute, aJerusalem think tank. “They have adopted the model of the multiple- domicile family. Only instead of Parisor Provence, they want a penthouse in Jerusalem,” he says.

Modern Orthodox and non-Orthodox Americans are also buying in Tel Aviv, Herzliya, Ramat Hasharon and Savion east of Tel Aviv, Ashkelon to the south and even Eilat, says Anglo-Saxon’s Loval, whose company operates all over Israel. He says a combination of Zionism and extra disposable income is fueling the decision of many to own a home in Israel. “The community is generally extremely wealthy. For some families it’s a third home,” he says.

But some people for whom Jerusalem is their first and only home fear that the hyper-gentrification is creating problems: Many of the new condos on choice land stand empty most of the year, and the high prices have made those areas unaffordable for locals. On the other hand, Gonen points out, locals understand that foreign buyers “pump up the real estate values” of their own homes, and provide business for a supporting cast of architects, lawyers and decorators.”

I think this “juggernaut” requires a solution before the demographics are irreversible. I want to recomend the Aliya incentive fund as a possible solution that will also be a contribution to Jerusalem. The City of Jerusalem should assess a non-resident purchase tax on home purchases in Jerusalem. In addition, Arnona (annual property tax) should be raised by an order of magnitude (10X) for non-residents. Since foreign home-owners do not contribute to local businesses throughout the year, this extra tax income should be used for incentives for local businesses and home subsidies for lower income families in Jerusalem.

However, I think the tax should come with a refund. If the home purchaser moves to Israel (makes aliya), the municipality should return the tax collections of the previous 3 years. If as Tal says,

“ though prices are spiraling by Jerusalem standards, they’re still dirt-cheap compared to New York. The price of a prewar Park Ave. co-op apartment — the rough equivalent in terms of prestige of, say, Jerusalem’s Jamal mansion — is $30,000-$40,000 a square meter, four to five times the going price in the Holy City…”

then this plan won’t deter foreign home buyers but all of Jerusalem’s residents and shop owners can benefit from “Juggernaut” instead of being driven out of Jerusalem by the upward “spiraling” home prices.

For those looking to make aliya, click here.

[Originally published on 15th September 2006 by MIchael Eisenberg]