The Bank of Israel’s latest interest rate hike last week has immediate consequences for more than a million families in Israel who owe millions of shekels to the bank in a mortgage arrangement. These include many Charedi families. As a result of these cumulative increases,
While the entire population suffers from interest rate hikes, the Charedi sector is particularly affected. Traditionally, banks in Israel willingly grant mortgages to Charedi customers, knowing that their repayment rate does not fall below that of other Jewish sectors, notwithstanding their socioeconomic status. Many banks, as every Charedi person knows, give out huge mortgages to low-income couples based on a rabbi’s letter confirming “parental support” or even on clearly fictitious Kollel payment statements. Banks turn a blind eye to a real examination of their Charedi clients’ income for a simple reason: incomes are a financial metric designed to guarantee the bank that the customer will meet the repayments. If the data shows that the average Charedi family will repay even if its income is low, why should banks refrain from granting the loan?
Banks turn a blind eye to a real examination of their Charedi clients’ income for a simple reason: incomes are a financial metric designed to guarantee the bank that the customer will meet the repayments
This has been a remarkably consistent reality until today. However, there are worrying signs that the situation may change. The wave of price increases last year, coupled with repeated interest rate increases, has created a challenging situation. The Charedi public is facing a real crisis, Heaven forbid, which we might dub “the Charedi subprime crisis.” The public is highly leveraged with no regard for its earning capacity or regular expenses. Will we be able to withstand continued price increases hitting us from every direction?
One of the least discussed facts concerning the Charedi economy is its dramatic improvement over the past decade. We constantly hear about the erosion of the middle class, marked by the rising cost of living and housing prices. Charedi households, however, saw significant growth in their average income over the past decade. There was a 19% increase in the income of Charedi households between 2014 and 2019, a far more rapid increase than that of parallel non-Charedi households, whose income increased by only 7%. The main reasons for this were the increase in employment rates and salaries, especially among Charedi women, which, in turn, are related to higher levels of academic participation and careers in the technological sectors.
Banks turn a blind eye to a real examination of their Charedi clients’ income for a simple reason: incomes are a financial metric designed to guarantee the bank that the customer will meet the repayments
These changes created an optimistic view of the economic situation within Charedi society. Low employment rates among Charedi men and the lack of core curriculum studies have concerned economists and government officials. Yet, the fact that many, even those engaged for many years in full-time Torah study, manage to get by caused Charedi society to generally believe that these are baseless concerns raised only out of hostility towards the Charedi lifestyle. While they are hardly entering the highest brackets of Israeli income, the rise in Charedi income is encouraging.
Yet, the general improvement in standards of living has not kept pace with the increase in housing prices. In the past, a young couple could find smaller and cheaper apartments in peripheral cities and thus avoid over-leveraging. Today, this is no longer the case. According to official data from 2018, mortgage payments of Charedi households exceeded those of non-Charedi Jewish households. In fact, the only factor that allowed Charedim to continue purchasing apartments was the low cost of credit. In an era of low interest rates and endlessly rising housing prices, huge mortgages covering seventy percent or more of housing costs seemed a worthwhile and smart investment.
Today, however, things are beginning to look very different.
An Increasing Burden of Debt
Every Charedi individual is aware of the importance placed on the acquisition of an apartment. In the Charedi community, most couples marry at a young age with the clear intention of purchasing an apartment. An inviolable rule of the Lithuanian yeshiva world dictates that a couple should start its journey with a large lump sum for the purpose of buying an apartment. In other Charedi sectors, this is less of a requirement, but most parents nonetheless provide significant assistance to their children in this area to the extent they can.
Among the Lithuanian Yeshiva community, assistance to children is most common. Over the past decade, a full 80% of households bought their married children an apartment or assisted in the purchase thereof, compared to about two-thirds among Chassidic communities and about half among Sephardic communities. Parents within the Yeshiva community helped in buying an average of 2.9 apartments for their children, compared to only 1.7 apartments for Chassidim and 2.1 apartments for Sephardim. In the Yeshiva community, the married couple takes on half or more of the obligation in only 37% of households, compared to 75% among Sephardim and 74% among Chassidim.
Parents within the Yeshiva community helped in buying an average of 2.9 apartments for their children, compared to only 1.7 apartments for Chassidim and 2.1 apartments for Sephardim
To understand exactly what it means to commit to an apartment for a Charedi household, it is enough to look at trends in housing prices. The average price of an apartment bought by a non-Charedi Jewish household in the years 2007-2010 was approximately 959,000 NIS, rising to 1.5 million NIS in 2015-2018 – an increase of about 63%. In contrast, the average price of an apartment purchased by Charedim increased from 682,000 NIS in 2007-2010 to 1.2 million NIS in 2015-2018, an increase of some 78%. Since 2018, housing prices have only continued to climb.
Even before the increase in interest rates, increases in the price of apartments have affected the size of the mortgage repayments paid by Charedi households. Between 2016 and 2019, the average repayment increased from 2,459 NIS per month to 2,878 NIS per month. What happened from 2019 until today? There is no exact data on this yet, but in 2022 alone, housing prices increased by almost 20% compared to the previous year. For those who have taken out mortgages in the last three years (and even before that), repayments will often be significantly higher than this average. As noted, all of this happened before interest rates rose dramatically.
Closing the Gap
What will happen now to those families dealing with ever-increasing mortgage repayments? The latest increase by the Bank of Israel brings the interest rate to 3.75%. This is the seventh consecutive increase since the bank began raising interest rates in April to fight inflation. It has resulted in an average total increase of 876 NIS in mortgage repayments since interest rate hikes began last April. The calculation is based on a mortgage of one million shekels taken over a 25-year period with 45% linked to the prime interest rate. However, some Charedi mortgages present far more daunting challenges.
Because of the intense pressure to purchase an apartment, young Charedi couples are typically leveraged up to their necks in taking out mortgages of 1.5 million shekels and even more
Because of the intense pressure to purchase an apartment, young Charedi couples are typically leveraged up to their necks in taking out mortgages of 1.5 million shekels and even more. If that isn’t enough, some also took advantage of the short time window in which a larger portion of the loan could be taken at prime interest rates. The result is thousands of families whose mortgages grew not only by hundreds of shekels but by over one thousand shekels within a year. If we return for a moment to the survey data cited above, it turns out that among the Sephardic and Chassidic communities, families that are especially challenged are young couples paying the lion’s share of their apartment themselves. In the Lithuanian Yeshiva community, the greatest difficulty is among older households, those that not only helped purchase their kids’ apartments but are also paying the mortgage on their behalf.
Of course, since the Bank of Israel’s interest rate hikes were taken to fight inflation, the rise in mortgage prices is not the only new hole in the monthly budget. Inflation in 2022 will probably be around 5%, and that’s not even the end of it. The prices of electricity, water, gasoline, and property taxes have all increased at the start of the civil year. And nobody can guarantee that the Bank of Israel has finished raising interest rates.
The gap between expenses and income reflects a well-known reality of life on the Charedi street: the race to “make ends meet” breaks new records with every month that passes
Indeed, these economic challenges are shared by the entire Israeli public, but they find the Charedi public in a particularly vulnerable position. Even before the last wave of price increases, Charedim found themselves in increasing debt due to housing prices, notwithstanding the fact that, as mentioned, their economic situation improved in the previous decade significantly more than in other sectors. Official data show that as of today, there is a gap of 2,621 NIS between the income and expenses of a Charedi household – an impossible sum. Part of this gap might be the result of “working off the books” – but only part of it. The gap between expenses and income reflects a well-known reality of life on the Charedi street: the race to “make ends meet” breaks new records with every month that passes. Creative ideas to supplement income are running out, while the need for them is only increasing.
When the Middle Class Slides Into Poverty
How can a Charedi household deal with this situation? For households in which women are the main breadwinners, it seems that a large part has already exhausted its ability to upgrade training and, accordingly, wages (as evidenced by the data on the closing of the hourly wage gap between Charedi women and non-Charedi women). For those in which men are the main breadwinners, an extensive systematic program to improve earning capacity seems impractical. Although the government has invested enormous sums for many years in male Charedi academic participation, the dry numbers show that 76% of Charedi men drop out before achieving a degree. Some men might be able to make a living from entrepreneurship; for those less talented in the field, it might be possible to eke out a living in traditional and largely unprofitable internal-Charedi professions – teachers, Sofrim, kashrus workers, and so on. Some, though less in the Lithuanian community, could consider a blue-collar profession.
To understand who will likely suffer the most from the deteriorating economic situation, we must look beyond the general data on Charedi economics. 76% of Charedi men may fail on their path to earning a degree, but 24% will not only finish but also succeed in their chosen careers. This group is made up of a Charedi elite: people whose mother tongue is usually Hebrew (and not Yiddish), who already come with a basic knowledge of English (or are talented enough to make it up), and who hail from a culture that fosters achievement. Just earning an average salary for men with degrees, complemented by a salary for their wives, will create a path into Israel’s middle class, even with a set of children far exceeding the average for non-Charedi families (though the number of children will usually be closer to six than ten).
Entrepreneurial and trade skills also provide some protection from Charedi poverty. According to the Askaria survey from 2021, about 11% of Charedim are self-employed, and only 32% have academic degrees. The rest are involved in a wide range of occupations, from programming to home renovations. Only 36% of all self-employed Charedim, however, report that the business is profitable. Even if we take into account some off-the-books work, not every business is going to thrive, which is where the “entrepreneur elite” stand out: those who have established themselves as self-employed individuals by means of seasoned trading and marketing skills and can provide for their families in a respectable manner.
What, then, is the fate of Charedi men who do not find success as entrepreneurs or as professionals with academic degrees? Their salaries will be low, and they will have few options for improving their situation. A Charedi school teacher, a salesman in a hardware store, or an Egged bus driver cannot walk up to his employer and ask for a significant increase in salary simply because of rising costs of living or because the mortgage is skyrocketing. This is true for households bringing in two salaries and more so for households with a single (women’s) salary supplemented by a meager Kollel stipend. In the Lithuanian and Sephardic Yeshiva community, which pride themselves in high numbers of Kollel students, those who do not belong to the “successful elite” will find it exceedingly hard to close the income gap.
The real concern is for the “internal Charedi middle class” – households whose financial situation has never allowed for vacations abroad or a car produced in the last decade but have managed to live in relative comfort until today
An employed woman cannot easily add thousands of shekels to her monthly salary, and her husband’s contribution to the family’s livelihood faces both ideological and practical obstacles. If they overcome the former, the latter will remain in full force. Without training or special skills, how is a Kollel man supposed to land a job in a short period of time? When he does find a job, it will usually be at a far lower salary than his wife’s, and the very fact of his going to work could impair her ability to work at the same rate. In the final assessment, there is no guarantee that the financial bottom line will improve significantly. The mirror image of this challenge is found in the Chasidic community, in which there are more non-working housewives. There is often little chance that they will be able to find a job that will not result in greater losses for the household economy than financial gains from the extra salary.
This knotty problem may explain the sense of urgency of the Charedi MKs in their various (and some would say, bizarre) proposals within the framework of recent coalition agreements. Despite accusations of being out of touch, the vast majority of them are involved and engaged with their communities; they are certainly familiar with their territory. They know that the successful elite that most benefited from the state’s funding of various training programs, does not comprise the majority of the community. They also know that the stratum of families in dire poverty has always been and always will be. The real concern is for the “internal Charedi middle class” – households whose financial situation has never allowed for vacations abroad or a car produced in the last decade but have managed to live in relative comfort until today. The increase in housing prices, mortgage repayments, and the general cost of living put the financial stability of these households in real jeopardy.
An inevitable lesson
If there is a real solution to this situation, it hardly lies in canceling the tax increase on disposables and sugary drinks, nor in inevitably modest increases in government-backed Kollel stipends. The path to a solution lies in clear recognition of the new situation.
The majority of the Charedi public is not very poor, although large parts of it, whose situation was relatively stable in the previous decade, have exhausted their earning capacity and are finding it difficult to afford the current cost of living. A couple in which he works as a cook in a Yeshiva and she in educational consultation, or she a social worker and he a Kollel student, will not find an easy pathway to improving their financial situation. They will need elusive academic or technological training for him, an unlikely successful business for one of them in addition to the current income, or an additional job. The last option, needless to say, is far from simple. Most find it difficult to work more than one full-time job (in fact, most Charedi women do not hold even one full-time job), while untrained Kollel men will hardly find a job that justifies the reduction in work hours required of his wife’s childcare needs (or the hiring of a babysitter).
Will Charedim really start falling behind on their mortgage repayments? Hopefully not. It seems that Charedi families will sacrifice everything possible to meet the repayments. However, the price for this is poverty, which most homes have been accustomed to in the last decade. I am not expecting property repossessions to become widespread among Charedi families. Most, I think, will somehow hang on. But prices will be paid. There is a high cost to situations in which parents devote too many hours to Sisyphean work with low wages just to survive and to a life in which anything but the most critical is dropped from the agenda. The family will pay these prices even if the apartment remains in their possession.
We could have learned about the economic fragility of Charedi households during the Covid-19 period. Unfortunately, the unpaid vacation policy and the generous grants provided by the government delayed the learning process. It cannot be avoided now. With all things considered, the dedicated work of one spouse (and sometimes both) simply isn’t enough to respectably support a Charedi family with children in less prosperous economic times.
Like it or not, we live in an economic reality that requires, for the great majority of families, two incomes per household to exist at a reasonable standard of living. Even if the wonders of our Charedi economy make it possible to challenge this rule in good times, times of crisis prove its validity. Only a minority of Charedim can survive on one salary while paying a mortgage of the magnitude seen in the last few years, with monthly payments that are only increasing. This is a situation that every family needs to consider. Can they join that minority through additional training or entrepreneurship? If not, how can they earn more without affecting their current income stream?
Instead of waiting for a government magician to pull a cash rabbit out of a hat, there is no escape from performing this self-reflection for ourselves and drawing conclusions for the future
Additionally, there is another key lesson to be learned. Those things that are hateful to you, our Sages instruct, should not be done to anyone else. It is time to apply this rule to our children. We may not know what economic turmoil their world will face. However, we must ensure they acquire the skills that will enable them to work in fields that can provide a respectable income that increases over time. Even for parents who want their son to study at Kollel, it is only right to ensure he has the basic skills and worldview required to succeed in the working world, should he ever need (or desire) to cross the line. After all, even those who expect their daughter will become a housewife are expected to equip her with some professional training and skills that enable her to contribute to supporting the family in some way.
The new government, despite all the coalition demands of the Charedi MKs, cannot spare us the economic soul-searching in which a considerable part of Charedi households must engage. Instead of waiting for a government magician to pull a cash rabbit out of a hat, there is no escape from performing this self-reflection for ourselves and drawing conclusions for the future. Given the current climate, it would be best not to wait for the next interest rate hike to do so.
 Survey of household expenditures by CBS.
 Survey by the “Seker K’halacha” Institute for the Israel Democracy Institute, 2018.
 “Does a handful of food satisfy the lion?”, Israel Democracy Institute, 2022.
 Survey of household expenditure by CBS.