Jerusalem — Molly Livingstone and David Tanami, a young couple in Jerusalem, were forced to move from the tree-lined neighborhood of Katamon to Armon Hanatziv (East Talpiot), a far-cheaper neighborhood next to a couple of Arab villages, this summer, after their landlord, who’d already raised the rent by 25 percent, demanded another big price hike.

When Livingstone, a 28-year-old mother who works in public relations, began her search for an affordable, centrally located alternative, it turned into a mission impossible.

The few places she found were exorbitantly expensive, their prices inflated by an apartment shortage. Thousands of Jerusalem apartments are either too expensive for the average wage earner, or simply not for rent, left empty by absentee landlords.

“Many of my friends have left the city,” Livingstone said, her voice becoming agitated. “Jerusalem is basically becoming a ghost town, and it’s upsetting to the people who want to live here but can’t.”

Aggravated though she is by the situation, Livingstone stopped short of advocating an end to foreign purchases of Israeli real estate.

“I don’t’ want foreigners to stop buying apartments. What I want is for someone to build affordable housing.” Livingstone warned that unless something is done to keep and attract middle-class residents to the city, “it will be left with a gaping hole.”

Balancing the needs of ordinary Israelis, builders looking to make a profit, the government’s coffers and diaspora Jews wishing to own a piece of the Jewish homeland has never been easy for Israeli officials. And it became a whole lot harder over the summer, when hundreds of thousands of citizens joined mass demonstrations over the high cost of living.

Faced with a full-blown social revolution on his hands, Prime Minister Benjamin Netanyahu decided to take the side of Israeli consumers.

“At the demonstrations there were many voices calling for regulating the sale of housing as an investment for foreigners in order to put less pressure on prices,” said Danny Ben-Shahar, who teaches architecture and planning at The Technion-Israel’s Institute of Techology.

“No one knows what policies will be implemented and that’s creating a lot of uncertainty” in the real estate market, Ben-Shahar noted.

What is certain is that prices, which had risen as much as 20 percent annually in the past couple of years, are no longer increasing, and that potential buyers — including diaspora Jews — are taking a wait-and-see attitude.

Since the summer, the number of real estate transactions “has dropped dramatically, Ben-Shahar said. During the same period of foreign investment in Israeli real estate has also decreased significantly.

Even before Tel Avivi’s working poor set up tents on tony Dizengoff Street, the government was already taking steps to cool the red-hot real estate market.

Fearing that the bubble would burst, and that local banks would be threatened, the government has tried to make it more expensive to purchase a home acquired for investment purposes.

According to the Buy In Israel website, last January the government raised the purchase tax on second and third apartments — apartments not the primary residence of the owner.

To encourage investors to sell, and thereby increase the number of properties on the market, the government cancelled (for two years) the capital gains tax ordinarily imposed on the sale of second and third apartments. Previously, sellers who didn’t want to incur the tax had to wait four years between transactions.

The government also reduced the betterment tax rate on private land purchased before 2001 to 20 percent, and is giving contractors a 15 percent rebate if they complete 80 percent of their construction within 30 months.

While Israelis acknowledge that much of the housing shortage is due to government bureaucracy surrounding building permits, and developers who manipulate the supply to increase their profits, many people also blame investors, especially diaspora Jews, for the shortage of apartments.

The belief is so embedded that the Tel Aviv municipality recently said it would double the city tax on apartments left vacant for more than a year. A Jerusalem municipality spokesman said the issue of empty apartments “is still under internal consideration and discussion.”

Jerusalem Mayor Nir Barkat’s short-lived program to encourage absentee homeowners to rent their places to students failed to attract interest.

More than 10,000 apartments in Jerusalem are owned by foreigners, according to Elan Ezrachi, chairman of the Ginot Community Council, a body that represents eight Jerusalem neighborhoods.

Ezrachi said it was unrealistic to expect owners to permit strangers into their homes.

“They don’t need the income, and their homes are usually very elegant, with fine furniture and artwork, and the thought of having students there just didn’t fit.”

In fact, Ezrachi said, middle-class diaspora Jews who purchased small or medium-sized apartments often rent out their properties to finance their upkeep and/or mortgage.

The problem is that many rent out their places on a short-term basis. “This enables them to stay whenever they want but doesn’t alleviate the housing shortage,” Ezrachi noted.

Michael Beenstock, a Hebrew University economics professor who studies the housing market, estimates that foreign buyers have unwittingly pushed residential housing prices up 15 percent by decreasing the number of available apartments by 3 percent.

“The feeling is that without foreigners, the prices would be considerably lower,” Beenstock said, adding that foreign ownership “is now on the nation’s social agenda, as is the belief that it’s not in Israel’s best interest. People are saying, ‘If someone wants to stay in Israel for a short time, they should stay in a hotel and not use scare real estate resources.’”

There are even some Israelis who consider foreign homeownership “anti-Zionist,” because “it’s making life more difficult for the people who live here,” he said.

Beenstock called the luxurious Yemin Moshe and Mamilla neighborhoods, where apartments typically cost millions of dollars, “virtual ghost towns, where there’s not a cat on the street.”

Ezrachi, from the Ginot community council, said that in many of the buildings in his area (which includes the German Colony, Rehavia and Talbiyeh) “almost all the window shutters are down.”

Often, he said, “one or two people live in the building year-round, and they feel lonely and sometimes unsafe. The upkeep may fall on them.”

Furthermore, people who don’t live in Israel permanently “consume less from the local grocery store and their children don’t go to school.” Additionally, local university students and young couples “have fewer apartments to choose from and can’t afford to live here.”

The answer, Ezrachi said, isn’t to discourage foreign investment but to build a large number of affordable housing units.

Ezrachi emphasized that foreign real estate investors “shouldn’t be punished” for caring enough about Israel to invest in its future. A lot of diaspora Jews initially purchased properties during the second intifada, he said, as a show of solidarity.

If it were up to Ezrachi, the government would reach out to prominent foreigners who own homes in Israel to utilize their expertise and perhaps money to find solutions to the problem.

“Some of these are the most dedicated and passionate leaders in today’s Jewish world. Encourage them to use their leverage to create affordable housing projects and dorm rooms,” Ezrachi said.

For Sylvia (not her real name), a New Yorker who visits Netanya, where she has a two-bedroom apartment, twice a year, the controversy surrounding foreign ownership is “bewildering.”

“My husband and I purchased the apartment to support Israel,” said Sylvia, who asked that her name not be published. “We could have bought something in Arizona or Florida, but we’re Zionists. Israel is our home, even if we don’t live here so often.”

For those who make Israel their permanent home, it’s hard not to feel the middle-class squeeze. Molly Livingstone’s friend and former Katamon neighbor Shira Pruce, 30, moved from Jerusalem to the south of the country a year ago, in large part due to housing prices. Her fourth-floor studio in Jerusalem cost her $769 per month plus municipal taxes and expenses.

“I worried all the time that my rent in Jerusalem would go up,” said Pruce, who, with her boyfriend, initially rented a house with a garden on a southern moshav for $742 a month, and now pays $716 a month for a pleasant two-bedroom place with a large terrace in Beersheva. The price includes everything but electricity.

“I’m very happy with my choice to live in Beersheva. It’s got an infrastructure, parking, no traffic, and,” Pruce noted enthusiastically, “it’s affordable.”