As someone who lives in Eretz Yisrael, let me explain a few things. Israelis have a different mentality than we Americans (yes, after 20 yrs. I still consider myself American – thank G-d). Everyone here assumes that the other is trying to take advantage of them and therefore want to protect themselves. Everything here is also more business-like. I have spoken to many families about this, given that my children are nearing shidduch-age, and if you are not comfortable with forking out so much money or squeezing someone dry for all they have, you don’t need to buy into this. If you would rather get to know your child’s potential in-laws rather than worry about their bank account, that is also fine. There are plenty of other people who feel the same way – don’t make an issue out of it, just tell shadchanim that you will be happy to discuss money when things are getting serious, so long as the mechutanim feel the same way and have bitachon that something will work out – even if not an apt. in Yerushalayim, and respectfully tell the Rosh Yeshiva to mind his own business.
The sad part is that many people think there is no alternative and put themselves in the poorhouse for this. I have spoken to many people who have bought their children apts. in a cheaper part of the Negev, etc. Like everything in life and in Yiddishkeit, you must do what you are comfortable with. Just as a person may not be comfortable with certain chumros and hanhagos, they need not buy into this.
By the way the same goes for you Americans (this I don’t identify with) who feel they have to make a fancy wedding, I have American relatives who made simple weddings because that is what they could afford. My boys’ Bar Mitzvahs were homemade food for the seudah for a small crowd, and a simple kiddush after davening on Shabbos – that is what we could afford and that is what we did.