With Home Buying Raging, Israel’s Efforts to Build New Rental Housing Falter

A few years ago it was announced that 150,000 long-term rental units would be put up within a decade. Now it looks like 5,000 units will be an achievement.

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Illustration by Adi Emanuel.
Illustration by Adi Emanuel.
Nimrod Bousso
Nimrod Bousso
Nimrod Bousso
Nimrod Bousso

It seems axiomatic that to stem Israel’s spiraling housing prices, residential construction has to be ramped up. But somehow this process has been slow to get going.

“I’ve been a tenant in apartments since 2005, and every time I signed a lease for a year, sometimes with an option for a second year, the clock started ticking,” says 30-year-old Ariel Barak. “You know that your time will soon be up and then you’ll either have to leave or the price will go up, so you live in fear. And every time you move, the new rent is higher. I got sick of this.”

Barak, himself a project manager in construction, decided to do something about it. He and his wife signed a five-year lease with an option for another five years at Africa Israel Properties’ Savyonei Glil Yam rental project in Herzliya, just north of Tel Aviv. They moved into their new home about two and a half months ago.

Because of the good location, the rent isn’t cheap, but Barak says his peace of mind and quality of life make the new apartment worth every shekel. Their landlord-tenant experience is far superior to what they experienced at their previous rentals, including the most recent one, a three-room apartment in the Tel Aviv suburb of Ramat Gan, where they suffered maintenance issues and sometimes even disputes over whether the repairs were necessary, Barak says.

There are 274 households at Savyonei Glil Yam, and a quarter of these rentals are at reduced rates. The project is actually the fruit of an old campaign promise by Yair Lapid, the head of the Yesh Atid party and the previous finance minister, to create a sophisticated long-term rental market that would provide an alternative to buying a home.

About four years later, the numbers of families among the 600,000 rental households around the country that are benefiting from the effort is still small. The plan that was launched with such fanfare is having trouble taking off.

It’s hard to know if people took Lapid seriously when he announced that 150,000 long-term rental units would be built within a decade, but it was thought that 30,000 to 40,000 over that span was feasible. But even that hasn’t been reached.

This year, residents of only one other housing project in the program, a 281-unit complex, are expected to take occupancy in the Tel Aviv suburb of Ramat Hasharon. The pace is due to pick up a bit in subsequent years, but it’s doubtful that after 10 years even 5,000 apartments will be finished.

The urge to buy

It’s not that the slow pace in creating long-term rental housing stems from a lack of interest among decision-makers. At this point, two years after Lapid left office, there are still plenty of people in national and local government and business – and of course renters – who would welcome a quick boost in the supply of long-term rental housing.

As finance minister, Lapid created a government company, Dira Lehaskir, tasked with opening up the rental housing market. TheMarker has found, however, that the effort has been mired in deficiencies that if not addressed will hold the plan back forever.

Two drawbacks are particularly noteworthy. First is the lack of communications between the government and companies that should be its primary partners, providing the funding for construction and ultimately owning the giant rental housing projects. Apparently the business sector hasn’t been particularly keen on the idea.

The second drawback is that local governments aren’t active where the rental housing would be built, particularly Tel Aviv. Local governments want to get involved, but the Knesset hasn’t yet granted them the authority.

In addition, the flagship project of Lapid’s successor as finance minister, Moshe Kahlon, is Mehir Lemishtaken, which is designed to reduce home prices for purchase by selling developers land at reduced cost.

Uzi Levy, the chief executive of Dira Lehaskir, the government’s rental housing corporation, has been highly critical of Mehir Lemishtaken. “In the center of the country, most of the public construction bidding for government-owned land should have been for long-term rentals, not for Mehir Lemishtaken,” Levy says.

“At the Gadna complex in south Tel Aviv, for example, about a year ago we marketed land for 350 rental units. If it had been made available to Mehir Lemishtaken, 350 people would have won the lottery with a benefit of more than a million shekels ($271,000) and in five years they would have sold their apartments and made a fortune. But marketing a long-term rental project allows 1,000 to 1,500 households to live in a project for a lifetime, letting more people enjoy the benefit.”

Still, Levy’s rental housing corporation isn’t totally blameless for its sluggish performance. Its government-set target last year was to invite bids for the construction of 2,300 long-term rental units, but bids were only invited for about 1,000.

Asaf Zamir.Credit: Moti Milrod

Asaf Zamir: The state doesn’t know how to separate the city’s needs from the whole country’s needs.

“A critical mass of rental housing requires planning. Large amounts [of land] are in the planning process,” Levy says, adding that this land is expected to be made available through a fast-track process that includes a requirement to set aside 30% of the units for long-term rentals.

Recently 11,000 units have been approved through the fast-track process in Lod, southeast of Tel Aviv, he says. About 3,500 of the units will therefore be set aside for long-term rentals. Currently about 40,000 units are in the pipeline, but they won’t be available for sale for another three or four years.

Confusing Tel Aviv with the boondocks

Uzi Levy.Credit: Moti Milrod

It’s no surprise that the need for long-term rental housing is particularly acute in the center of the country. This is where housing prices are highest and landlords have been able to raise rents the fastest due to high demand. That’s particularly true in the heart of the central region, Tel Aviv, where city hall has been trying for about a decade to advance its own plan for long-term rentals, but without great success.

Ironically, city officials say their efforts have repeatedly been stymied by the national government. “What makes a city a city is the varied human mix,” says Tel Aviv Deputy Mayor Asaf Zamir. “Young people, older people, families, poor, rich, migrants, various religions. That’s a city, and making it possible in areas where demand for housing is the highest requires regulatory intervention in the marketplace.”

As far back as 2009, Tel Aviv City Hall began including affordable housing in its urban plans, Zamir says. “The municipality understood back then that this was the only way to maintain a diverse population, and it was carried out with a large number of developers. You have rights to build 10 stories? I’ll give you 14, but two of them have to be given back to the municipality for subsidized, rent-controlled housing based on affordable-housing criteria.”

Zamir says the state’s interests in housing often aren’t urban interests.

“The state doesn’t know how to separate the city’s needs from the whole country’s needs. It looks at the whole country and assumes that Tel Aviv’s housing crisis is similar to Afula’s housing crisis and that there has to be a single solution for everyone,” he says.

“As a result, all kinds of politicians come out with Mehir Lemishtaken, projects for young couples and all kinds of other programs while ignoring the demands and needs of local governments where demand for housing is highest. There’s also a fear of making decisions that would relate to Tel Aviv and the Tel Aviv area specifically. Since in most of Israel the interest is in ownership and not renting, rentals are the last thing they get to deal with.”

The Tel Aviv municipality has also promoted an effort to develop rental housing on land it owns and has built two such projects totaling 100 units in the Yad Eliahu and Shapira neighborhoods with more on the way near Florentin nearby. But city officials admit that such numbers don’t make a real dent in the problem. The city is also trying to use perks to get developers to set aside portions of their own projects for rental housing.

Finally, on a national level, in January the governing coalition supported a bill that would let local planning committees require that 15% of housing units up for approval be set aside for reduced-price rental housing.

The bill, which is pending before the Knesset, would also let local authorities decide eligibility criteria for the rental housing, which may give preference, for example, based on years of residence in the city, number of children and a couple’s efforts to maximize their earning potential.

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