The OECD is concerned about “unwanted developments” within the Israeli housing market and has called for the “progressive withdrawal of monetary stimulus,” due in part to the large involvement of the banks in Israel. Additionally, the international organization recommends that Israel significantly increase its spending on health, pensions and education.

OECD calls for phasing out incentives

OECD calls for phasing out incentives Photo Credit: radub85/123RF

The Organization for Economic Co-operation and Development (OECD) published a report today (Tuesday) concerning the Israeli economy and applauds the country’s expected growth. However, the report also addresses some troubling signs within the Israeli housing market and offers the government steps that may moderate the rising real estate prices.

According to the report, Israel’s economic growth is expected to increase by more than 3.4% in 2018 and 2019. Part of the growth is attributed to the development of new gas fields and to higher wage increases, which is affected by Israel’s low unemployment rate. “Appropriate” fiscal conditions are expected to support domestic demand, which will improve economic growth, and the organization also mentioned the shekel’s stability and strength.

Large apartment buildings in Tel Aviv

Large apartment buildings in Tel Aviv Photo Credit: Flash90

Furthermore, the international organization calls for the government to take several economic steps, such as “gradual tightening” in terms of economic stimulus in order to moderate the housing market. On the other hand, the OECD also recommends that the Israeli government increase spending on education, health and pensions in order to promote economic growth (“infiltration”) into many segments of the population.

“As house prices continue to increase rapidly, the authorities should maintain prudent macro-prudential policies,” the organization warned. “The risks of unfavourable developments in the real estate market remain high, and the banks are heavily involved in this sector. Continued public debt control and wide budgetary margins are needed given Israel’s particular geopolitical situation.”