The Financial Situation of Ultra-Orthodox Households Before and After the COVID-19 Crisis

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What are the ramifications of recent developments, and especially of the COVID-19 pandemic, for the economic resilience of ultra-Orthodox households in Israel?

Has the cash flow of income and expenditures among ultra-Orthodox households improved or deteriorated in recent years? Are the resources available to them growing or shrinking? And what are the ramifications of recent developments, and especially of the COVID-19 pandemic, for the economic resilience of ultra-Orthodox households? These and other questions are addressed in an Israel Democracy Institute study of the economic behavior of ultra-Orthodox households.

Recent years have seen a rise in the standard of living of ultra-Orthodox households, manifested both in a rise in income and a rise in expenditures. This stems primarily from the rise in income from employment, as well as from a rise in allowances and subsidies. Nevertheless, the gap t between income and expenditures—with expenditures exceeding income observed in the past, persists. This can be attributed to two factors: First, unreported income among about 10% of employed ultra-Orthodox men. The second, the fact that ultra-Orthodox families are very young and are saddled with debts as they get started in life. These findings demonstrate that despite the rise in income among ultra-Orthodox households, their financial resilience has not significantly improved. The norm of purchasing housing for a newlywed couple has indeed been chipped away to some extent, but remains prevalent. However, unlike in the past, the main burden of paying for housing now falls on the young couple. This financial obligation leads to heavy debts to banks and to larger mortgage payments than in the past. Their debts to ultra-Orthodox free-loan societies are of secondary importance as compared to the mortgage payments. The savings of ultra-Orthodox households are modest—only about 10% of their debts.

This gap also points to different standards with regard to employment and housing within the ultra-Orthodox community among various groups. The issue of employment is frequently decided at the household level; in the "Lithuanian" community, where fewer men are employed, the higher employment rate of women “compensates. for the lower rate among men. In the Hasidic community, the picture is exactly the reverse—more men and (relatively) few women, are employed. The Sephardic ultra-Orthodox community is somewhere in the middle with regard to both men and women.

The norm of buying an apartment simultaneously with marriage is most common in the Lithuanian community. As a result, the rate of home-ownership among them is the highest, followed by the Hasidim and the Sephardim.

For the short term, the COVID-19 pandemic had only a limited impact on ultra-Orthodox society. The income of those employed declined as a result of being laid off; the income of fulltime kollel students was also cut back to a certain extent, because of the drop in donations to their institutions. Nevertheless, the negative effect on ultra-Orthodox households was only slight thanks to the generous government grants to both the employed and the unemployed. At the same time, the study reveals that economic recovery from the pandemic among the ultra-Orthodox has been slower than among the non-Haredi sector. This can be attributed mainly to the fact that a significant percentage of the ultra-Orthodox who are employed, are working in unskilled jobs, for which the demand is limited.

Another factor relevant to the recovery from the pandemic is the installation of a new government, the first since 2015 with no ultra-Orthodox parties in the coalition. The government has taken several steps to encourage the ultra-Orthodox to enter the workforce. Passage of the Conscription Law, which lowers the exemption age for military service to 21 will open avenues to higher education and employment for young ultra-Orthodox men aged 21 to 24. Cutting back allowances, by annulling the subsidization of daycare for ultra-Orthodox families in which the husband is not employed, and the lack of coalition funds for the ultra-Orthodox parties may also motivate young ultra-Orthodox men to go out and find a job.

Main Findings

The research findings reveal that in the years before the pandemic (2014–2018) the income of ultra-Orthodox households increased more quickly than that of non-Haredi households, mainly because of ultra-Orthodox women’s increased income from employment. By contrast, the employment rate of ultra-Orthodox men rose only slightly, as did their income. The total income from employment of ultra-Orthodox households was NIS 8,070 in 2014 and NIS 9,767 in 2018—a rise of 21%. During the same period, the total income from employment of non-Haredi Jewish households rose by only 16.5%. At the end of this period, however, the average income from employment of an ultra-Orthodox household was still only 66% that of non-Haredi Jewish households.

Among ultra-Orthodox households, the increase in income was accompanied by increased expenditures, which, on average, remained consistently higher than their income—a gap of NIS 3,300 a month. The findings indicate that the income of one of every six ultra-Orthodox men of working age —is unreported income ("off the books"). Thus, in reality, income is higher than as appears in in Central Bureau of Statistics data. Another explanation for expenditures exceeding income is that a higher percentage of ultra-Orthodox households are made up of young couples, who are significantly more likely to spend more than they take in, in anticipation of a larger income later in life.

In recent years there have also been changes in the savings and investment patterns of ultra-Orthodox households, all of them aimed at making it possible for young couples to become homeowners. In the past, studies found that in order to achieve this goal, ultra-Orthodox households tended to buy inexpensive apartments, with low mortgage payments and increased debts. Findings of the current study indicate that this strategy is becoming less effective: housing prices and mortgage payments among ultra-Orthodox households are increasing at a more rapid pace; the rate of homeownership is at a standstill, and the increase of debts on account of the apartment is contracting. The average monthly mortgage payment of an ultra-Orthodox household is NIS 1,383- higher than that of non-Haredi Jewish households- NIS 1,219. This represents a 40% increase in this expense since 2014, when the average monthly mortgage payment by an ultra-Orthodox household was NIS 981—lower than the figure for non-Haredi households at the time. By way of comparison, in this period, according to CBS figures, the Israel House Price Index rose by only 17%. Behind the increase in the average mortgage payment by ultra-Orthodox households was not only the increase in the percentage of ultra-Orthodox households with a mortgage, from 40% to 45%, but also the increase in the sum of the average mortgage, from NIS 2,450 to NIS 3,100 a month. Some of the increase in the sum of mortgage payments resulted from the long-established norm in ultra-Orthodox society whereby parents finance most of the cost of the newlyweds’ apartment. Today a significant percentage of ultra-Orthodox parents with children of marriageable age report that they find it difficult to help them purchase an apartment than in the past. As a result, most young couples find themselves having to cover half or more of the cost of their apartment (and sometimes- the full amount).

Other data indicate that debts exceed savings. In 2018, the average savings among ultra-Orthodox households came to NIS 56,000, but their average debt-- was NIS 453,000, and about 21% of their monthly income was allotted to paying it off. The bulk of ultra-Orthodox households’ debts are to banks (73%), and only then to free-loan societies (7%). This breakdown of their debts is compatible with the increase in the percentage of bank mortgages, as well as the switch by many of the large and medium-size free-loan funds to stricter bookkeeping methods, in part as they prepare themselves for the Free-Loan Society Law.

Finally, we found that the net income of ultra-Orthodox households was reduced only slightly by the pandemic, thanks to the generous government policy on unemployment benefits and grants. However, the unemployment rate among the ultra-Orthodox was higher than that among non-Haredi Jews, both at the height of the pandemic and after the lockdowns. Whereas in the first quarter of 2021 the employment rate of non-Haredi Jews was 90% of what it had been before the pandemic, among the ultra-Orthodox it was only 85%. The pandemic also posed a major challenge to the free-loan societies, whose turnover stagnated.

Looking towards the future, we can say that ultra-Orthodox households find it difficult to achieve an income level on a par with the level before the pandemic, due to the fact that return to the workforce was only partial. Another challenge is the fact that the ultra-Orthodox are not included in the current government, which has in certain cases placed limits on the support for the ultra-Orthodox sector. This situation will increase the financial burden on ultra-Orthodox households, especially among the young. The decision to lower the age of exemption from conscription to 21 may make it possible for more ultra-Orthodox young men to enroll in vocational training programs and find jobs at an earlier age, both because the law will permit this and because of their increasing need to support their families.