Rental Prices in Tel Aviv Rose 49% in Six Years, Says Report

Will prices pull back? 'Yes, the mood has changed,' says one expert; 'Never happen, Tel Aviv is fun,' says another.

The international norm is that rent shouldn't exceed a third of a family's income. In Tel Aviv, that may be a problem.

"To pay monthly rent of NIS 5,000 a month, a couple should net NIS 15,000 to abide by that rule, and that isn't easy to earn in Israel," says Ehud Hameiri, chairman of Ehud Hameiri & Co. Economists and Real Estate Appraisers.

huldai - Nir Kafri - August 3 2011
Nir Kafri

"I think people are spending more than a third of their income on rent. It isn't just a few who're netting NIS 7,000 a month and have to pay NIS 3,000 in rent, which is more than 40% of their income. People like that should reach conclusions and maybe move somewhere else," Hameiri says.

Or one can reach another conclusion. "Prices in Tel Aviv border on the absurd," argues David Zanzuri, owner of the Keren Gad property brokerage. "A [single-room] studio apartment can go for NIS 2,700 to NIS 3,000 a month, a two-room apartment costs NIS 4,000 to NIS 4,500, a three-room apartment leases for NIS 4,700 to NIS 5,500 a month and a four-room apartment costs NIS 6,000 to NIS 7,000."

Why is that absurd?

"Because these prices are absurd relative to people's income," Zanzuri says. "If three flatmates share a four-room apartment it makes sense, but if a family has to pay NIS 7,000 a month, it's a horror scenario. Half their income goes toward rent. I think prices are going to go down, for both buying and renting."

Why? Because of the prevailing mood, which is bad for landlords, he says.

Renters have three main problems. The first is they don't have the wherewithal to buy a home, certainly not in Tel Aviv and generally not in any other city within central Israel. The second is that the cost of rent has soared from year to year.

According to the Central Bureau of Statistics, from 2005 to date, rent in Israel rose 34%. In Tel Aviv, it rose 49%. In Jerusalem, the cost of rent increased by 32% in those six years, and in the greater Sharon district, rent climbed 36%. In the south the increase is a smaller - but significant - 21%, and in Haifa, it's 12%.

The third problem is that when rent rises, people save less and have fewer resources to buy a home.

Until now, Israelis complained but paid, which did nothing to lower rental prices. But things may start to change. One thing already has changed - young adults are moving back with the parents to save money.

"I think things have reached a breaking point. In the last month I only closed one rental transactionh, compared with two or three deals in a usual month," said Zanzuri.

Problem: Tel Aviv is fun

Hameiri doesn't buy it. "Mayor Ron Huldai turned Tel Aviv into the city that never sleeps. The influx of young people to the city center raises demand and prices," he says. "Everybody wants to bike to work," as opposed to driving or taking the bus. "That raises prices in the city center. Nothing can be done about it and there's no reason in the world for the state to subsidize it."

What are the alternatives for students studying at Tel Aviv University?

Zanzuri doesn't think the suggestion they live in Kfar Sava is realistic: they don't want to, anyway, he says. They want to live in Tel Aviv. They don't even want to live in Ramat Gan or Givayatim, he says.

There are other differences between the Israeli rental market and the norm elsewhere in the world. For instance, Israel doesn't have many long-term lease contracts. No wonder; why would a landlord enter a deal that locks in price, even with an automatic increase mechanism, if he can raise the rent each year by however much he sees fit?

"Usually landlords ask for 3% to 5% more a year, and that's reasonable. People pay it," says Rafi Zaurov of the Geranium agency. Moving costs a lot more than that, he points out. It's rare for landlords to jack up the price in any extreme way, certainly not in recent months.

"Some landlords try their luck. They ask for a price and if they get it, great. If not, then they lower their sights. But the apartments don't stand empty," observes Zaurov.

On the other hand, he feels the message is sinking in that this isn't a good time to increase rent. Tenants are standing up for their rights, he says. And while there are still rent transactions, when it comes to housing sales, the market is dead as a doornail, he feels. But, Zaurov predicts, if landlords don't start marking down their prices, the rental market will also start to ebb.