Economic gaps widening in affluent Israel

JERUSALEM - First came a revolt over cheese that forced Israel's largest dairy companies to lower their prices.

Now, with consumer rage mounting over what is widely seen as a staggering cost of living, tent camps have sprung up across Israel to protest housing prices that climbed while costs fell globally amid the world's financial meltdown.

The camps draw inspiration from the mass demonstrations in the Arab world, and illustrate Israel's paradox: While its economy is roaring, many Israelis aren't enjoying the good times.

The country has one of the highest poverty rates and income gaps in the developed world. Food prices have surged in recent months, as have fuel costs, while recent strikes by social workers and doctors spotlight how the frustration has cut across all layers of the society.

But with prices for modest apartments well over $500,000, it's the housing crunch that has Israelis like Lital Yitzhak and her husband, a warehouse manager, fuming.

Eight months ago, the couple was forced to move in with her mother because the $900 per month they were paying to rent a small, two-bedroom apartment in one of Jerusalem's poorest neighborhoods left them heavily in debt.

"I don't know what a young couple is supposed to do," said Yitzhak, a substitute preschool teacher who, together with her spouse, earns about $1,800 a month - at the low end of what Israel's working class pulls in.

However, the crunch many like them endure is not reflected through the country's main economic indicators.

A month ago, Israel's central bank raised its official 2011 growth forecast to 5.2 percent, more than twice the International Monetary Fund's estimate released in June for real GDP growth for advanced economies. Unemployment in Israel has fallen to 5.8 percent, its lowest level in decades.

The current government "has had significant economic achievements," Finance Minister Yuval Steinitz boasted in a television interview on Tuesday.

On the surface, the gains are impressive.

Expensive apartment complexes are being built, new cars ply the streets, and pricey restaurants are packed.

But many Israelis complain that the overt signs of economic growth are misleading - reflecting the benefits enjoyed by a wealthy minority while the majority struggles.

Due to heavy taxes, gasoline, for instance, costs $8 a gallon, and a family sedan carries a price tag of $35,000 or more. A standard, 1,000-square-foot (100 square meter) apartment can easily top $600,000 in metropolitan centers like Tel Aviv and Jerusalem, and $200,000 to $300,000 in second-tier areas.

Meanwhile, the average Israeli salary stands at about $2,500 per month, with key professions like teachers, civil servants and social workers typically earning less than $2,000 a month.

Many jobs are available only for part-time employees or offer low wages with few benefits, experts say, while the government's critics point to an underdeveloped public transportation system as curtailing access to better paying jobs.

"The trouble is, too little trickles down and too much stays in the hands of a very small proportion of the population, which certainly has become much richer in recent years," said John Gal, dean of the school of social work and social welfare at the Hebrew University in Jerusalem.

The housing crunch has mushroomed largely on the back of supply not keeping pace with demand. Between December 2007 and August 2010, housing prices jumped an inflation-adjusted 35 percent.

The spike in prices sparked a grass roots outcry, with the epicenter of the protest in Tel Aviv, where dozens of tents occupied mostly by young people now line the median of a wealthy boulevard. In Jerusalem, a couple of dozen tents were pitched on a patch of grass facing the walls of the Old City.

"Prices have skyrocketed all over the country," said Merav Cohen, an affordable housing activist and Jerusalem City councilwoman. "The situation is dire."

The images of the tent camps, appearing on the evening news and front pages of newspapers, have caught Prime Minister Benjamin Netanyahu's attention - in part because they come at a time when iconic images of tents in central Cairo speak to the political upheaval taking place in neighboring Egypt. Much of that unrest, too, stems from years of economic inequity and a widening gap between rich and poor.

Netanyahu has promised to solve the housing problem by freeing up government-owned land for construction, cutting red tape so apartments could be built quickly and offering tax breaks to entice real estate investors to put empty apartments on the market.

Critics, however, question whether more apartments will translate into lower prices.

The skepticism is linked to Israeli's relatively unique dynamics.

Steep defense and welfare spending have led to high taxes. Another major factor is the concentration of the economy in the hands of just a few businesses, encouraging the type of cartels that prompted a revolt against cottage cheese prices weeks earlier. That protest ended when Israeli dairy companies acquiesced before a massive Facebook campaign and cut prices 25 percent.

Proposals to spur competition in key areas like electricity production have been on the table for years. These efforts, though, have either stalled or often transferred government monopolies to private hands. On the flip side, Israeli trade groups warn that opening the market to greater outside competition could result in job losses and factory closures.

For the average working class Israeli, however, what matters is how costs hit their wallets.

Merav Palachi, 49, has held a full-time civil service job for just over three decades and her husband has been with the postal service for nearly two. Between the two of them, they clear about $3,200 a month. Their salaries stretch thin with four children, a mortgage, two car loans and high food prices. Fruit is just too expensive for their budget, she says.

"I don't dare to look at it" at the supermarket, she says. She buys discounted dry goods at a neighborhood food co-op. Her two older children, who are in their twenties, live at home because they can't afford to rent.