Land market segmentation along ethnic lines: Four urban localities in Israel as a case study

Land market in Israel is formed by several submarkets stratified by ethnicity of local residents – Jews, Arabs and Druze. However, no study, carried out to date, investigated the magnitude of land price differences between these submarkets and factors affecting them. The present study attempts to fill this gap by comparing residential land prices in four towns of comparable size, one of which (Daliyat al-Karmel-Isfiya) has predominantly Druze population; the second town (Afula) is mostly populated by Jews; the third town (Shefa-'Amr) has a mixed Arab and Druze population, and the fourth town (Baqa al Gharbiyye-Jatt) has a homogeneous Arab population. The analysis covers the period between 2000 and 2016 and uses transaction records obtained from the Israel Tax Authority. The study reveals significant land price differences between the Jewish town of Afula, in which land prices are relatively high, and the rest of urban localities under analysis, where land prices are relatively low. Concurrently, there appears to be no significant differences in land prices between Arab and Druze localities under study. As the study also shows, market fundamentals (such as population income and natural population growth) appear to affect land prices in Afula only, while there is no evidence of any significant effect of these factors on land prices in Arab and Druze localities under analysis. We attribute these differences to the fact that land market in the Arab and Druze sectors in Israel is a distinctively different submarket, which appears to be heavily shaped by "informal" land transactions within the family, and unregulated property rights that effectively prevent mortgaging and land sales outside the community. The study highlights the extent to which land market restrictions and inefficiencies can alter land price trends.