The high cost of living in an apartment tower in Israel
An increasing number of buildings with 16 or more stories are being built in Israel, and not just in city centers. Is this contributing to the rising cost of housing?
The rising cost of housing is usually blamed on a shortage in supply. But the problem may not be so much an absolute shortage of homes, but the fact the housing being built doesn't match the financial capabilities of most of the population.
According to the Central Bureau of Statistics, high-rise construction has gained so much momentum that, today, more than 10% of all apartments being built are in towers rising 16 stories or more. The cost of buying these apartments (and the fees to maintain them) pushes them out of the reach of the middle class and young couples - the main victims of high housing prices.
The first half of 2013 saw construction starts on 2,258 apartments in buildings with at least 16 floors, accounting for 11.5% of the total. Last year, 3,668 high-rise apartments accounted for 9.5% of all starts, although that is down from the peak year of 2011, when a record-setting 6,617 apartments in towers accounted for nearly 15% of all housing units begun that year.
In contrast, from 2000-03 high-rise construction made up less than 3% of starts, so clearly the trend has been growing rapidly. The time has come to evaluate it.
The surge in high-rise construction is particularly remarkable considering that the flood of foreign residents in the housing market hit its peak midway through the last decade and has since subsided. The number of foreigners now buying lofty apartments is negligible except for some super-luxury projects on the Tel Aviv beachfront. Even so, the number of towers going up has been rising consistently.
In many circles, this is undoubtedly seen as a positive development. "High rises are a national need," according to a presentation given last year by Dr. Rina Degani, CEO of the consulting and market-research firm Geocartography, citing the shortage of land, urban renewal and National Master Plan No. 38 (aka TAMA 38, which provides for earthquake-proofing buildings) as reasons for their necessity.
Without getting into the accuracy of such statements or the vested interests behind them, as is so often the case what passes for "public discourse" is totally disconnected from social needs. Building residential towers runs against the need to lower housing prices. It doesn’t take a diploma in real estate to grasp the high correlation between the height of a building and the price of the apartments it contains. The taller the building, the more expensive the units will be per square meter.
A study conducted by Degani at the end of 2012 concluded that the average price of high-rise apartments is substantially more than those in ordinary buildings. Based on this alone, it is clear that increasing the number of units in tall buildings effectively reduces the supply of housing within reach of most of the population. "This is true," Degani tells Haaretz, "but you need to take into account that builders aren't operating in a vacuum, that there is strong demand for these apartments and that people are willing to pay more for them."
Rachelle Alterman is a legal expert and city planner at the Center for Urban and Regional Studies at the Technion – Israel Institute of Technology, Haifa. She calls high-rise towers a type of "illusion ... put together by the unholy trinity of government, municipalities and builders."
The government, she explains, creates the illusion that land is being better utilized by building apartment towers, pointing to the inclusion of several smaller units in the plans as increasing the supply of small apartments. The municipalities, meanwhile, want to show off prestige building projects that soar into the sky. Builders certainly support the phenomenon, says Alterman, because taller buildings make better and more lucrative use of small parcels of land. The cost of the environmental impact is shouldered by the public. "This is precisely what is happening today in Yehud, Be'er Yaakov, Petah Tikva, and in other cities," she says.
But it isn't just the prices that make high-rise apartments unaffordable to the general public. A study commissioned in 2005 by the Interior Ministry, conducted by a team from the Center for Urban and Regional Studies headed by Alterman, found that owning a unit in a residential high-rise usually entails unforeseen maintenance payments that make monthly costs substantially higher than those in smaller buildings. And it's worth remembering that apartments in high-rises with poor upkeep quickly lose much of their value.
"Proper high-rise construction can be cheaper than low-rise building. The high prices for apartments in residential towers are largely attributable to land costs and taxation, not construction," says Alterman.
In her book "Migdalim Koshlim" (“Faulty Towers”) published following the study, Alterman points out that many apartment towers built decades ago are falling into disrepair. She says the problem will only get worse with time, since the cost of maintaining a big building is beyond the financial means of most of its residents. According to the study, elevators, water pipes and sprinkler systems need to be replaced or refurbished every 15 years on average, at an overall cost reaching $1 million (in 2005 prices) - equivalent to 20% of the building's total value.
The study researchers outlined four levels of required maintenance: elementary maintenance such as cleaning and gardening; periodic maintenance like tarring the roof; extensive repairs and the replacement of systems to maintain it at its current standard; and improvements to bring the building up to par with newer structures.
The main problem is at the third level - repairs and replacement - which requires considerable spending by the building's homeowners. Even today, most homeowners' associations and building management companies ignore this level and restrict their efforts to the first two. How many people can afford the upkeep of a high-rise? Alterman believes that, except for luxury projects in Tel Aviv, very few high-rise dwellers can cope with the long-term maintenance costs imposed on them.
Architect Gil Shenhav, who serves as chairman of the Israeli Forum for Skyscrapers, sees things differently. A person living in a seven-story building and paying NIS 200 a month in building maintenance shouldn't be deterred from moving to a 20-story high-rise that charges NIS 500 a month for maintenance. "High-rises are generally located in city centers, which saves people long and expensive commutes - so overall it's worth it," he argues.
Nowadays, however, many apartment towers are situated away from any downtown area - in places such as Be'er Yaakov, Petah Tikva, Tzur Yitzhak or Netanya's Kiryat Hasharon neighborhood. "The problem is that there's no national policy on this issue," says Shenhav. "The result is towers sprouting up not where they should but where they can."
Still, it can't be denied there's a market for high-rise apartments, and that builders wouldn't be erecting them if they weren't convinced of the demand. "One of our big problems is temptation," says Shenhav. "We always aspire to upgrade our homes rather than downgrade them. Would people be willing to forgo another bathroom in order to lower the cost of the apartment? The answer is no. Everyone wants to live in a prestige building with an elegant lobby."
One way or another, it's clear that a significant portion of what is called "housing supply" doesn't really satisfy the need, especially when the government repeatedly declares its intention to lower prices.