Israelis protest costly housing – but not cost of settlements. Why?

Israel yesterday announced new homes in East Jerusalem to ease a housing shortage. But critics argue that the cost of building in contested territory is partially to blame for Israel's economic woes.

Bernat Armangue/AP
A worker is seen on a construction site in the neighborhood of Pisgat Zeev in East Jerusalem, Thursday, Aug. 11. The Israeli government, facing public protests over the soaring cost of housing, announced on Thursday it is advancing plans for thousands of new homes in contested East Jerusalem.

The Israeli government, facing unprecedented public protests over the soaring cost of housing, yesterday announced it is advancing plans for thousands of new homes in contested East Jerusalem.

The announcement, which drew pointed criticism from Palestinians, the United Nations, and the US, highlights an issue that has been largely avoided by the month-long protest movement: the cost of Israel's policies in territory it conquered during the 1967 war.

The new homes will be constructed in Har Homa and Ramat Shlomo as part of a rapid expansion of Jewish communities in East Jerusalem, which Israel annexed after the war – a move that has cost Israel both international goodwill and hundreds of millions of dollars.

In traditional Arab neighborhoods near the Old City where tensions run particularly high, the Housing Ministry has an annual budget of $22 million to provide security for roughly 2,000 Israelis – or $11,000 per resident, according to Peace Now, an Israeli group opposed to the occupation.

The group also says that Israel’s government invested four times more per capita in public building in the West Bank than the national average in 2009, and twice as much per capita in West Bank municipal governments, according to data from Israel’s Central Bureau of Statistics.

The chairman of Israel's Settlers Council, Danny Dayan, acknowledges that public spending per capita on settlements is more than Israel’s metropolitan spending, but insists that it is roughly the same as rural towns inside the 1967 line.

He says that the focus on settlements is "demagoguery" by politicians and Israeli journalists who are unconnected to the protesters.

Why protester leaders have avoided settlement issue

Leaders of the socioeconomic protests that began last month on Tel Aviv's tony Rothschild Boulevard have largely avoided debates over the Israeli-Palestinian conflict in an effort to appeal to a broad range of Israelis and thus maximize pressure on Prime Minister Benjamin's Netanyahu's government.

The protests are at root a criticism of Israel’s shift to a free-market economy over the past 20 years, and a call for the government to reassert itself on behalf of the middle and working classes. But because protesters are also calling for a reprioritizing of Israeli spending, many argue that settlements and the absence of peace have a sizable impact on the economy and thus should be part of the debate.

"The settlements are a key issue in our economy, but ... the protesters don’t touch [settlements] because they want to be as inclusive as possible," says Hagit Ofran of Peace Now. "I believe that the settlements and the fact that the occupation goes on makes the story much worse. The government is investing with almost no limit in occupation and paying a huge price."

Settlement economy less productive

It is a classic guns-versus-butter debate. Veterans of the Israeli left wing have complained for years that the middle- and lower-income groups suffer most from public spending in territories claimed by the Palestinians and the absence of a peace deal.

Many Israelis make a distinction between building in the West Bank and East Jerusalem, however, seeing the latter as part of the Israeli capital and fair game for housing developments.

A portrait of the settlement economy published in July by the Organization for Economic Cooperation and Development found that it is a drag on Israel’s per capita economic production. Relative to the rest of Israel, economic activity in the settlements is more focused on public administration, construction, and house ownership. At the same time, the settler economy has less manufacturing and business services and higher unemployment than the Israeli average.

In 2007, on the 40th anniversary of the 1967 war, the centrist Israeli media outlet Ynet news reported that the total economic cost of the occupation to date had reached $50 billion – or about a quarter of Israel's annual gross domestic product. However, estimates vary widely – in part because not all costs associated with the occupation are discretely identified in government reports.

For Israeli settlers, the West Bank settlements can be a bargain. Comparable homes can be found for less than half the cost of those in Israel proper, attracting many commuters as well as more ideological settlers. Over the past 15 years, the population of West Bank settlements has nearly doubled, according to the OECD report.

Settlers: invest more in West Bank, E. Jerusalem

Settler groups and allies have argued that the government should invest more in building in the West Bank and East Jerusalem in order to bring down housing prices nationwide.

Gidi Grinstein, director of the Reut Institute in Tel Aviv, says that settlers are a well-organized minority interest group that has traditionally had far more influence on Israeli policy than the middle class.

"The settlement issue is part of a broader topic that is indeed very relevant to these protests: the middle class has never been a sector that drives politics in a sectarian manner – and this is where it is vulnerable and short-changed compared to groups who have a much narrower view and loyalty, and frontload their sectarian interests before national considerations."

The settlers are just one of a few groups that have been able to extract disproportionate gains from the political system, he says, along with tycoons, the ultra-Orthadox, labor unions, and the agricultural sector.

"If this wave of protest or unrest turns into a political power to the middle class and working class, then for sure all the sectors will have to compromise," he says.

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