eal estate saw continued apartment price rises in 2010, while the government took steps to increase supply and restrain demand. The Central Bureau of Statistics housing price index rose by 15.2% in 2010 and since 2008 has risen by 29% in real terms. Despite the sharp rise in apartment prices in the past three years, rental prices have only risen 12%, and in 2010, there was a significant slowdown in the pace of rises. The Bank of Israel said in its annual report that the relationship between home prices and salaries equals on average 11 years work. This is higher than the long-term average which is 9.3 years.
The low interest environment in the economy since the global crisis reached a nadir of 0.5% and is considered one of the causes of the home price rises. Low interest creates surplus demand for apartments from investors buying a home for investment and this is the investment option in which most was being put. In the past two years, the Bank of Israel has changed its monetary policy and raised interest from the historic low to more than 3%, and the expectation is that interest will reach 4% by the end of 2011. This measure has succeeded in reducing the number of new investment apartments purchased from 30% at the end of 2010 to 25% in early 2011.
Due to the sharp rise in home prices, voices are being raised claiming that that a real estate bubble is developing. In the past year the Bank of Israel and government have stepped into the fray in an attempt to slow the price rises. These steps were designed to increase the supply of apartments and reduce demand for investment homes. The measures included restricting buyers groups, making mortgages more expensive, with their weight in an apartment's price higher, as well as restrictions on importing capital and tax instruments designed to restrain demand. On the supply side, the amount of land marketed was enlarged, betterment tax was reduced to those selling land, and steps were taken to accelerate construction.