Immigration and Home Ownership: Government Subsidies and Wealth Distribution Effects in Israel

A wealth‐building, egalitarian argument is persistently used to justify homeownership policies. This paper examines this argument in light of the Israeli housing market experience during the 1990s. Under the pressure of mass immigration from the former USSR, the governmental mortgage scheme evolved to misleadingly appears as a voucher system. This system reconciled two conflicting paradigms: (1) the commitment of Israel to serve as a safe haven for all Jewish people, (2) the rising belief in the merits of economic liberalization. This system proved to be effective in creating a construction boom, and in achieving high homeownership rate among immigrants. Yet, analyses presented in the paper suggest that it led to rapidly increasing prices, chaos and distortion in the housing market, and incurred high costs for small, disadvantaged groups.