Israel's Building Inputs Price Index Costing Billions.

By Menachem Brenner, Uri Cohen, and Dr. Meir Sokoler
The cost of living in Israel, one of the highest in the world, is influenced to a major extent by housing prices. The consistent rise in housing prices, is influenced by many factors with the shortage in supply of land, especially in areas of demand, the main but not only factor. Another significant factor is the Price Index of Inputs in Residential Building, which means that the final price of an apartments is not known to the buyers, even when signing the purchase contract.

The Price Index of Inputs in Residential Building is calculated by the Central Bureau of Statistics. It is very important for the entire construction industry and for those buying new apartments directly from building contractors because payments for new apartments are linked to it. The index is published each month and measures changes in expenses related to construction: work, materials, products and services. The index serves architects, building contractors, craftspeople and customers wanting to estimate the expected rise in price of construction contracts.

Those buying apartments 'on paper' are exposed to rises in the Price Index of Inputs in Residential Building during the period between signing the agreement and completing full payment to the contractor. As the average home takes 30 months to build, the final price of the apartment can rise during this period by tens of thousands and even hundreds of thousands of shekels.

Read the full Globes article.

Menachem Brenner is Professor Emeritus of Finance.