While countries around the world have already realized the economic potential of sustainable construction, only 7% of the housing units completed in Israel in 2014 were built under this standard. ‘It’s a huge leap, but it’s not enough,’ expert says.

Ilana Curiel
Published: 09.24.15

Why is Israel lagging behind in the economic and financial aspects (cost saving and investment, respectively) of green building, compared to the world?

It’s customary around the world to bridge the gap between the relatively high initial investment in sustainable construction and its benefits and future saving, by using a variety of financial tools which provide governmental and private funding.

Among them are purchase tax credit on the ground, state-guaranteed loans to entrepreneurs, improving the supply of green apartments for rent as part of government plans, “green” loans for renovating properties given by commercial banks during the property’s purchase/sale, etc.

Seven percent of the housing units completed in 2014 were built under the standard of green construction. “It’s a huge leap, but it’s not enough,” says Omri Carmon, a research fellow at the Jerusalem Institute for Israel Studies’ Milken Innovation Center, who deals with financial tools for sustainable building for housing at the Ministry of Environmental Protection.

“In terms of funding the green building market, it is less dangerous because of the savings,” he says. “We are talking about a market which is experiencing a meteoric growth around the world. Research shows that for every shekel the State invests in green building for housing, it will receive three shekels back. In GDP terms, there is a three-time return on an investment in green building for housing. In loans for green construction, studies show that the returnability reduces the risks by 20 to 30 percent.”

Carmon adds that sustainable construction benefits both the user and the economy. “They say that between 10 to 30 percent of the energy consumption is being saved,” he notes.

“The construction culture in Israel is very wasteful. Buildings and apartments are built in an extremely inefficient manner. The construction industry is very conservative and it is hard to introduce the new technologies that have already gained momentum in the world. We are in a housing crisis and there is pressure to reduce prices, but people are not talking about the cost of living. Green building adds about two to four percent to the construction cost,” and this addition will be returned to the buyer later on through energy saving and even health.

Adding value to the green through money

Countries around the world have already realized the economic potential. In California, for example, an innovative plan in the field of green building was enacted in 2009, allowing full funding for sustainable construction and green renovations of building, with the payment based on municipality taxes. The plan, Property Assessed Clean Energy (PACE), has created thousands of new jobs and brought in hundreds of millions of dollars in private investments.

One of the groups that joined the program reported saving more than $130 million in electricity and water, with more than 41,000 properties receiving a green renovation. Today, the plan is being implemented in 31 states, each in its own way.

Bob Blumenfield, a member of the Los Angeles City Council, advanced the legislation when he served as a member of the California State Assembly. He explains that there is a lot of interest in green building in Los Angeles. The law he advanced helped property owners improve their energy consumption. They used the property in a special way.

For example, if a person didn’t have money to install a solar panel, he could have applied through the program for a loan which he would return through taxes on the property. If the borrower went bankrupt, the taxes would remain on the property.

In practice, the property owner’s energetic saving is balanced out with the tax increment, which disappears after the loan is returned. Blumenfield explains that in order to encourage green building, one must look at the economic aspect: “You add value to the greenness – and that’s the money. The turning point comes when the environmental interest matches the economic interest. The question is how to reach this turning point.”

While Germany and the United States lead the creation of financial tools for green construction, Israel is not even on the map. The Milken Innovation Center at the Jerusalem Institute for Israel Studies held a round table discussion earlier this month with experts from the academic, governmental and commercial arena in Israel, the US and Europe, in a bid to understand why there are no attractive financial tools in Israel for this field and how this could be changed.