By David Rosenberg

Jerusalem, Israel

The tent city got underway to a slow start last Thursday afternoon, but by the evening it was growing, with tents sprouting and carpets laid out on Tel Aviv's Habima Square down the central meridian on Tel Aviv's Rothschild Boulevard. Guitars were playing, and impromptu dance parties coalesced. Food and even clothing were brought in by sympathizers. By the weekend it had turned into a political and media phenomenon.

The atmosphere was Woodstock and the participants decidedly young, including large numbers of university students, but the issue they came to protest was a decidedly middle-aged, middle class one: The high cost of housing and the perceived failure of the government to do anything about it.

"These are people who came here because they identified with my suffering," Dafni Leef, a 25-year-old who started it all on a Facebook page, said after she was evicted from her rented Tel Aviv apartment. "Everyone should be able to over their heads. I'm not leaving, whether it takes a year or two years, until it's solved. I'm here," she told the Y-net news portal.

The housing protest, which organizers say is spreading to other cities, comes on the heels of a successful, Facebook-driven, mass movement to bring down the price of cottage cheese. By comparison, however, housing prices are a much bigger and complicated problem, both for ordinary Israelis, who are finding themselves priced out of a home of their own, and for the government, which has struggled to bring them under control.

Home prices have jumped more than 60 percent in the past two-and-half years and more than 15 percent in the 12 months through May. Knight Frank, a British real estate consulting firm, said Israeli housing prices showed the fourth-largest year-on-year increase among 50 countries surveyed, behind Hong Kong, India and Taiwan.

Israel's economy is growing quickly, with gross domestic product expanding at a preliminary 4.6 percent annual rate in the first half of this year. The unemployment rate is under 6 percent, among the lowest in the Western world. Interest rates are low, making mortgages cheap. But many Israelis, including first-time buyers, can't take advantage of the situation.

Even as the economy booms, wages have stagnated. A survey published last week by the Globes financial daily and Azimuth Advertising found Israelis had just about reached their limit. People's willingness to pay more for a home had been rising steadily since early 2009, but in the first half of this year the average price people said they were prepared to pay barely changed at all, to 1.252 million shekels ($365,000).

"It's definitely a problem for home buyers. Real wages have dropped since 2008 and prices have gone up 63 percent- it's pretty easy to do the math," Jonathan Katz, an Israel-based macro-economist for the London-based bank HSBC, told The Media Line. "I think any market that goes up over 60 percent in two-and-a-half years is a bit frothier. I'd say it's bubbly."

Israel suffers a chronic housing shortage, but prices only began taking off after the Bank of Israel slashed its lending rates in 2008 in order to prevent Israel from sliding into the recession then gripping the world. Mortgage rates followed, falling to record low levels even as Israel's economy never experienced a deep financial crisis and economic downturn. Consumers rushed to the banks to take advantage of cheap home loans, spurring demand.

Since the end of 2010, the government has taken steps to alleviate the demand pressure. The Bank of Israel has raised its base lending rate five times in the past year and has imposed restrictions on mortgage borrowers. The Finance Ministry has done its part by imposing tax rules that discourage buying, especially by investors rather than real homeowners.

The central bank has good reason to clamp down on housing because it threatens to unleash an inflation Pandora's Box. But the government has good reason, too, because housing prices - not unlike the prices for cottage cheese - could easily turn into an election issue.

It was no wonder then the Rothschild tent camp was host to a steady stream of visiting politicians, not all of who were greeted respectively. Assar Zamir, a Tel Aviv deputy mayor, was pelted with eggs while Miri Regev, a lawmaker for the ruling Likud Party and a former brigadier general was booed, prompting her to call the protestors extreme leftists.

Netanyahu himself felt compelled to address the issue before Sunday's cabinet meeting. "The government is doing things to fix this disease, which has been plaguing us for many years. We are a small country, demand is high and there just aren't enough apartments," he said.

Bringing down the price of housing isn't the same as bringing down the price of cottage cheese. The market is much bigger and more complicated. Mistaken policy changes can reverberate throughout the economy, most dangerously cause a collapse of home prices, said HSBC's Katz. Stanley Fischer, the Bank of Israel's governor, warned of the dangers of rushing headlong into an assault on home prices.

"If there's something like a bubble, you don't want to take a heavy hammer and explode the whole thing. We have consciously taken serious try and slow the rate of increase and not kill the market completely," he told an investors conference in London July 7.

In fact, just as the tents are being erected on Rothschild there are early signs that the housing market may be stabilizing.

The Central Bureau of Statistics found that house prices rose in March and April at a monthly rate of 1.5 percent, nearly double the pace in February-March. However, the value of new mortgages granted in June fell 15 percent to NIS 4.08 billion from NIS 4.81 billion in May, which was close to the all-time high of NIS 4.82 billion a year ago. The number of new homes sold by private sector contractors fell 6 percent in May while the number of homes for sale rose 2 percent, which means the supply of unsold homes grew for the first time since 2009.

Gil Vinik, a realtor based in the Tel Aviv suburb of Kfar Saba, said he already sees signs of the market cooling down.

"It got to such a situation that young couples simply disappeared. The Herzilya and Kfar Saba areas have become virtually impossible for them -- 1.3 million and 1.4 million shekels for a three-room apartment with balcony," he told The Media Line. "The number of phone calls from buyers has fallen in the last few months."


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