Housing prices keep soaring, up 15% from last year

Housing prices in Israel rose by 15.2% between January and February 2021 and the corresponding period this year, marking a sharp 12-month climb in an already brutal housing market defined by soaring demand and inadequate supply, according to the most recent report by the Central Bureau of Statistics (CBS) published Friday.

Overall prices have been rising by 1.2% on average each month since February 2021, hitting annual increases of 17.7% in central Israel, 16.4% in Jerusalem, 14.5% in Tel Aviv, and 13.2% in Haifa. The government had hoped to limit rises to 6% for the year, but a new Bank Leumi survey indicated that prices may rise by another 9-13%, according to Globes.

Finance Minister Avigdor Liberman had said in December that housing prices would “moderate” by the end of 2022 and that he believes Israelis may even see prices drop in the coming years. Outrage over the spiraling housing costs and the rising cost of living has been growing across the country, more than a decade after Israel last saw widespread social unrest on the matter.

Economists and experts have said that the new government plans were a “drop in the bucket” and do not address the underlying issues such as rapid population growth, government-controlled supply, lack of infrastructure, and rising inequality.

According to the CBS report, prices for brand-new apartments rose by 17.8% in January and February 2022 compared to the same period last year, climbing by just over 5% from December 2021 alone. Demand was highest in Tel Aviv-Jaffa, Bat Yam, Jerusalem, Ashkelon, Netanya, and Rishon Lezion.

At the same time, there is more housing construction. CBS estimated in a separate report earlier this month that in 2021, construction began on 63,300 new apartments, almost a quarter of them in the Tel Aviv area and about a quarter in central Israel.

Also in 2021, building permits were issued for over 76,000 housing units, according to the same CBS.

The government has put forth an ambitious housing plan for 2022-2025 with an eye toward stabilizing prices. The plan set a target of starting construction of 280,000 homes over the next four years — significantly more than in recent years — advancing plans for 500,000 more housing units, publishing tenders for 300,000 homes on state-owned land, and having 180,000 successful such tenders.

The government has also committed to market some 30,000 affordable housing units under lottery systems to first-time buyers in 2022, with the first 10,000 underway as part of the new “Target Price” (Mehir Matara) scheme.

Separately, amid rising costs, mortgage data released this month by the Bank of Israel shows Israeli households took out new mortgage loans of NIS 13.4 billion ($3.98 billion) for March, up from NIS 11.2 billion ($3.33 billion) in February.

Another report by the Finance Ministry’s Chief Economist Office showed that investor activity in Israel’s housing market continues to cool, following the reinstatement of a purchase tax for investors (defined as households that own one or more dwellings) of 8% from 5%. The tax hike was reintroduced in late November 2021 in a bid to dissuade households that already owned a home from buying more and contributing to rapidly rising housing prices.

Prior to the tax hike, close to 40% of all housing units bought in November and October 2021 were by investors. In February 2022, investors made up 14% of buyers who were most active in Tel Aviv, according to the Finance Ministry report.

A recent survey of 38 countries’ real estate prices by an Australian property organization found that Israel was the second least affordable housing market, with an affordability ratio of 30.6% (measured by looking at average household disposable income and average property prices). South Korea ranked first.

Turkey was found most affordable for real estate, according to the study, with the US coming in second.

The average price for a four-room (three-bedroom) apartment in Israel reached almost NIS 2,300,000 ($712,298) in Q4 2021, according to quarterly and annual research by the Alrov Institute for Real Estate Research at Tel Aviv University’s Coller School of Management. That figure is higher by March 2022.

The institute studies average four-room apartment prices in 12 cities in Israel, calculating affordability gaps and loan-to-value ratios (a calculation in mortgage lending to determine the amount required to put in a down payment). The cities include Bat Yam, Rehovot, Ramat Gan, Petah Tikva, Rishon Lezion, Haifa, and Beersheba, as well as Tel Aviv and Jerusalem

The same study showed that buyers need about NIS 983,566 ($304,605) in personal equity to purchase apartments, up 12.4% from the previous quarter; this covers a down payment, closing expenses, taxes, lawyer fees, and other surrounding costs.

NOTE: This article was updated on May 17, 2022 to correct an error that gave March’s mortgage borrowing figure at NIS 5.6 billion. The correct figure is NIS 13.4 billion, according to the Bank of Israel.