Priced out of Israel?

AP has cottoned on to the fact that the Israeli housing market is hot, hot and getting even hotter:

According to Global Property Guide, a trade magazine that monitors the housing market, Israeli housing prices in the second quarter of 2010 rose sixth-fastest in a ranking of 36 countries. Four of the top five, including Singapore and Latvia, were rebounding from sharp price drops. So looking at the past two years ended in June — the last period for which there is data — Israeli real estate clocks in at No. 1...

Today, a three-bedroom apartment in Tel Aviv, with its beaches, balmy weather and freewheeling spirit, fetched an average 2.15 million shekels, or $560,000, in June, compared with 1.73 million shekels a year earlier, according to government statistics.

The price of an average apartment in Jerusalem, with its holy sites and mixture of ancient and new, rose 19 percent to 1.55 million shekels, or $403,000, at the end of June from 1.31 million shekels a year earlier.

Of course, the 'good' areas in Jerusalem, particularly the ones popular with immigrants from the West, are far more expensive than that, with many apartments in the $1million + range. For many young couples I know, Jerusalem is considered firmly out of reach.

The truth is, I genuinely don't understand how on earth so many Israelis afford all this. Israeli salaries are not extravagant compared to London or New York, and yet some of the prices in the centre of the country are comparable. Sure, there are hi-tech millionaires who are living large, but I can't figure out how the rest of the population is paying for their Tel Aviv pads. Answers on a postcard please.

Meanwhile, the housing boom has many implications for Israelis, but I am also interested to see what the impact of this going to be on Western aliyah. Israelis who can't afford to live in Jerusalem, Tel Aviv, Ra'anana or Modi'in and the like can move to the periphery (and in a country as small as Israel, it is relatively easy to live outside the big cities but close enough to commute). But most immigrants from the UK, US, France etc. want to live in communities with other immigrants, immigrants who speak their language and can provide cultural support. These are usually in the larger centres.

Until recently, part of the attraction of aliyah for many families was that they could trade in their expensive NJ/Hendon house for something even larger, and possibly mortgage-free, in Israel. This partially compensated for a drop in earnings or for needing to commute in order to make ends meet.

With prices so high, however, many middle-income Western olim are going to find that they lose this financial incentive. It seems to me that aliyah will still be attractive for youngsters who have never paid a mortgage and pay it little thought; for religious couples willing to live in settlements and other smaller communities; and for the very rich.

But your average Western couple? Irony of ironies, even if they are interested in making the move, they may find themselves priced out of the Israeli housing market.