ISRAELI SETTLEMENT IN OCCUPIED TERRITORIES AND ITS IMPACT ON HOUSING PRICES IN ISRAEL

The real price of housing in Israel rose 132 percent from 1959 through 1988. This paper investigates the factors standing behind the tempora l movement of the real price of housing. Special emphasise is given to the role of government policies that encouraged settlement in occupie d territories. A static model of the housing market is formulated and estimated, which takes into account the interrelation between the hous ing market in Israel proper and the emerging market in the occupied te rritories. In addition to confirming the role of demand shifters in ac counting for the increase in real housing prices, it is found that set tlement in occupied territories was an important moderating factor. Ac cording to our estimates, settlement in occupied territories accounts for a moderation of 1 percent in the annual rate of price appreciation during the Labor government, and 2.4 percent during the Likud governm ent. These figures are in line with our expectations in view of the di fferent policies pursued by the rival governments.