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Israel's Housing Market Dynamics: A Tale of Two Sectors

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  • Daniel Gat

Abstract

This article describes the specification, estimation and simulation of a DiPasquale and Wheaton (1996) type stock-flow model of Israeli housing. The model consists of three sets of equations: (1) price determination; (2) private and public housing starts; and (3) housing completions. Calibration, based on a thirty-eight year data set (1960-1997), supports the model's structural hypotheses as well as the specific explanatory variables. The statistical fit and significance are high and the signs are correct. The article has two simulations of the estimated model. The first is an ex ante projection through the year 2010, contingent on continued near zero per-capita income growth. The second simulation re-enacts an especially volatile period in the life of the market, indeed of the country—the unforeseen influx of half a million immigrants, mostly from the erstwhile Soviet Union during 1990-1991. The government responded with direct and heavy involvement. An ex post simulation addresses what may have happened if the public intervention was weak or non-existent. The article also discusses the macroeconomic cost consequences of the public housing initiative.

Suggested Citation

  • Daniel Gat, 2000. "Israel's Housing Market Dynamics: A Tale of Two Sectors," Journal of Real Estate Literature, Taylor & Francis Journals, vol. 8(2), pages 129-152, January.
    • Handle: RePEc:taf:rjelxx:v:8:y:2000:i:2:p:129-152
    DOI: 10.1080/10835547.2000.12090091
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