Jump in 2022 housing starts, building permits may act to slow price rises

Home-building in Israel jumped by over 15% this year, with some 70,000 housing starts recorded between October 2021 and September 2022 and permits for future construction reaching new heights, according to figures (Hebrew link) released Tuesday by Central Bureau for Statistics (CBS).

The report showed that construction started on 70,250 new apartments in the period between October 2021 and September 2022, up 15.6% from the previous period between October 2020 and September 2021, and the highest in the last four years. A quarter of all new starts were in the center of the country — 21.5% in Tel Aviv — reflecting the pressure on the housing market in those areas. Over 12% of new apartment starts were in Jerusalem, with another 12.4% in northern Israel and just over 16% in the south of the country.

Almost 12% of the apartments started in the past year were for subsidized housing programs offered by the government, according to the report. Just 4% were being built for long-term rental, despite the acute need for this type of accommodation, and around 18% of the total form part of registered urban renewal schemes.

The outgoing government coalition touted an ambitious housing plan last year, with a target of starting construction of 280,000 homes for 2022-2025, or roughly 70,000 a year, to quickly increase the supply of apartments and combat a spiraling housing crisis.

Over the past year, prices across the country have risen by over 20% based on national data, as the volume of home sales has fallen sharply from last year due to soaring costs and steadily increasing interest rates. The higher prices and rates have tempered mortgage borrowing volumes, which have been decreasing since March with a strong rise in November.

Gil Bufman, chief economist at Israel’s Bank Leumi, said last month that a drop in real estate transactions and mortgage borrowing, combined with an increase in housing starts, could soon reduce the inflation in housing prices, according to his estimates. An increased supply of homes could help slow or even shrink the rise in prices. If apartments remain unsold for long, developers — who have often also borrowed funds and are therefore hit by the interest rate rises — may settle for lower prices to manage cash flow.

In Gush Dan and Jerusalem, where the gap between house price rises and income increases is large, the mortgage burden is particularly acute and a further slowdown in sales is likely.

In addition to housing starts, the number of building permits issued — the final step before construction can start — rose by 26% year-on-year to 80,260 apartments between October 2021 and September 2022, according to CBS. About half of these (47.2%) were for apartments in the key areas of demand — Tel Aviv and central Israel.

Except for Haifa, every part of the country recorded an increase in homes approved for construction in the 2021-2022 period, compared to 2020-2021.

Overall between October 2021 and September 2022, close to 165,000 apartments were officially under active construction, according to the report. Of these, almost 50,000 apartments were completed, up 4% on the previous year.

The average construction time for an apartment building was estimated at 32 months.