Bank of Israel Governor Amir Yaron Urges Developers to Cut Housing Prices

Call to Developers: Lower Housing Prices

Bank of Israel Governor Professor Amir Yaron urged real estate developers to implement direct price reductions to stimulate the housing market. Speaking in an interview with Globes at the Israel Real Estate Conference, Yaron emphasized that the central bank is closely monitoring the gap between developers' credit utilization and actual sales.

"If developers want to accelerate sales, there is no way around it—lowering prices will wake up the market. We are seeing credit utilization in some projects that is higher than natural levels relative to the pace of sales. The way to close this gap is by increasing sales, and sales will come if they lower prices."

Yaron noted that promotional campaigns, such as "20-80" payment schemes, make it difficult to calculate actual housing prices, suggesting that real price declines are deeper than officially recorded. He warned that the central bank is tracking balloon payment structures and is prepared to intervene if risks to consumers escalate.

Interest Rate Path and Inflation

The interview followed the Monetary Committee's decision to lower the benchmark interest rate to 3.25%. Yaron described the decision as an exercise in risk management amid high geopolitical and fiscal uncertainty. With inflation recently dropping to 1.5%, well within the target range, the governor outlined a cautious path forward.

Future rate decisions will depend on economic developments. If inflation rises, the easing cycle may pause; if it continues to decline, the central bank will proceed with measured steps toward a neutral interest rate.

Fiscal Trilemma and Defense Spending

As the government's chief economic advisor, the Bank of Israel is preparing a strategic plan for the next coalition, focusing on a "fiscal trilemma" consisting of three pillars:

Reducing the debt-to-GDP ratio back to a downward trajectory.
Rigorous evaluation of defense expenditures.
Investing in growth engines, specifically education and infrastructure.

Yaron voiced strong opposition to Prime Minister Benjamin Netanyahu's proposal to secure a 400 billion NIS defense procurement budget over a decade ahead of the elections for the 26th Knesset scheduled for October 27, 2026.

"Security needs an economy. There is no such thing as an unlimited budget; there are no free lunches. We will have to finance these expenditures—either through current taxation, future taxation, or higher interest expenses. The military itself must internalize the scale of its increased budget and introduce controls to operate efficiently."

He also called for the elimination of coalition funds and negative employment incentives in the next budget to support sustainable economic growth.

Nvidia Dependency and AI Strategy

Addressing GDP performance, Yaron commented on Israel's growing economic reliance on Nvidia. While acknowledging that the global tech giant generates substantial state revenues, he cautioned that the high level of concentration requires vigilance.

Regarding artificial intelligence, the governor recommended that the government invest in core AI infrastructure to ensure technological sovereignty and avoid total dependence on foreign services like Google, Anthropic, or ChatGPT, while leaving application development to the private sector.