Mobility Versus Congestion


February 20

The past two years, 2013 and 2014, saw back-to-back double-digit annual increases in new car registrations in Israel — the first time this has happened since the early 1990s.

This surge in new car purchases seems strange, since the general economy was not growing rapidly in this period and overall private consumption grew slowly, if at all. But the data are clear-cut — in fact, the rate of increase was much faster, above 30%, in the early months of 2014, before falling back later in the year.

The main explanation suggested by most industry insiders and analysts is that the strength of the shekel in 2013 and most of 2014, coupled with the sharp slide in the value of the Japanese yen, were the factors driving people to buy new cars. To that can be added another important factor, with which Americans are well-acquainted, namely the ready availability of cheap loans with which to finance the purchase. Interest rates in Israel, as elsewhere, are at record-low levels and both banks and specialist finance companies are very pro-active in marketing car loans to households and firms.

As a result, the level of car ownership, measured as the number of passenger cars per 1,000 population, crossed the 300 mark for the first time ever during 2014. This is still very low by European standards — which are the relevant ones to judge Israel on, since a comparison with the US is meaningless. Even poor Western European countries, such as Portugal, have higher levels than this — in fact even Hungary, a poor and problem-laden central European country, ranks above Israel in car ownership.

The explanation for this phenomenon, which does not chime with Israel’s generally high level of economic development and household wealth, is partly demographic, partly economic and partly fiscal. Measuring car ownership per thousand people does not adjust for differing population structures: Israel is, especially by developed country standards, a very young country with many kids who — fortunately — may not, and therefore do not, own cars. Hungary, by contrast, is suffering from a severe baby bust and also from emigration of young people.

The other part of the story is that Israeli society is much more unequal than that of most European countries, with many more poor families. These are, for the most part, Haredi and Israeli Arab households, who tend to have larger families and few, if any, cars.

Finally, there is the fact that new cars are much more expensive in Israel, when measured in terms of the average salary, for example, than in most other places. This is a deliberate policy, in which very heavy taxes and duties are piled on to new cars. There are two rationales behind this policy. The obvious one is to use cars as a means of raising revenue — as much as possible. Together with annual registration fees and, in particular, the hefty component of duties on the price of a litre of petrol, this makes the private car a key source of revenue for the government.

But the other reason to keep car prices high and hence ownership low is to reduce road congestion. This is already a severe problem, especially within the big cities. The Tel Aviv conurbation is gridlocked for hours every business day, with the obvious public transport requirement — a subway system — still non-existent, although work has at least started on the Tel Aviv Light Railway, much of which will be underground.

Yet the situation is even worse in Jerusalem, and the prospects here are bleak indeed. On the one hand, the impact of rising living standards — and hence, inevitably, of car ownership — among haredi households over the next decade will have a much greater impact on Jerusalem than Tel Aviv or Haifa. But on the other hand, there is no chance of a subway and very little scope for increasing road space, in Jerusalem. Even bicycles, increasing popular in flat Tel Aviv, are a very different proposition in hilly Jerusalem…

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