“Hi Adi, it’s that time of year!” flashed the message on the screen of my cellphone, which was resting on my desk. The message was from the company managing the apartment I’ve been living in for the last year. The three-room apartment is home to two of us, spacious and well-lit, old in a tolerable, even charming way, in the heart of the older part of north Tel Aviv.
“Would you like to extend your contract with us by a year?” asked the company representative in a separate message. While still reading I started to feel the dread of searching for a new apartment. “Yes,” I replied immediately, already relaxing and filled with a sense of relief. I wouldn’t be spending the summer searching for an apartment, I wouldn’t be quarreling with realtors or sucking up to departing tenants. I also wouldn’t be dragging heavy boxes in the heat and humidity of July-August. However, my joy was premature.
“Excellent. Just take into account that the landlord wants to adjust the rent,” responded the representative with a nonchalance worthy of WhatsApp, adding – without bothering to cite any facts – “the price of apartment rentals in your area has grown by a thousand shekels or more over the last year, but we’ll make do with 800 [$249].”
So I went looking for an apartment. The next evening, I was already at the first place that had responded to my query, a studio apartment on Hissin Street in the city’s center, advertised by its owner on a Facebook group for people looking for rentals as a “ground floor studio apartment, well-lit and charming.” The ad had 138 responses in less than two hours. Outside the building, waiting patiently beside me, were three young women who had made it onto the owner’s list of candidates, as well as a young man who looked alert and ready for the mission, avoiding any eye contact.
At precisely 6 o’clock, a young man in his late twenties wearing a polo shirt opened the door, introducing himself as a realtor hired by the apartment’s owner. With him emerged eight other candidates who were hopping around him, declaring their desire to rent the apartment and sign a contract immediately. The alert young man jumped into the contested apartment. Between the freshly painted walls was a space no larger than 17 square meters (183 square feet) at most. At its northern corner was an office kitchenette with a small fridge for drinks and an old toaster oven that covered the entire counter. On the southern side was a huge window in the middle of the wall, with some flower pots and curved bars that partly masked the view, a neighbor’s window.
“The apartment is available in two weeks, with rent totaling 4,100 shekels a month, not including bills and realtor fees,” recited the realtor as we walked around one another in the tiny space, trying to imagine living there. Realtor fees, clarified the young man, were 6,000 shekels. “That’s illegal! We’re not supposed to pay that!” I wanted to shout, but thought it's better to remain silent. What would have been the point? Somebody else would pounce on the great “deal.”
“The contract is for one year, with an option of extending it. You can leave earlier if you find an alternative renter who is approved by the landlord, but you’ll have to pay a token fine of two months’ rent, to cover the owner’s hassle,” he added without blinking, while a handful of rivals standing around me just continued nodding at him, in submissive assent.
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In the following two weeks I saw more apartments than most people in this country have seen in their entire lives. At first, I insisted on staying within my clear Tel Aviv boundaries, marked by my workplace and the battery range of my scooter, which I use to move around the city. Every evening I found myself crowding into apartments with dozens of other people clamoring for a roof over their heads. All of them were overpriced for their condition and felt as though they imparted between their too-close walls. Some of them were miniature spaces, created from laundry rooms or from bigger properties that had been split up, improvised as one-person apartments, with bathrooms shared with neighbors or a kitchen sink located outside the apartment, on the roof. Others were just old, with mold growing on the walls or decaying kitchens and bathrooms. Their owners had apparently never bothered to maintain them and would never dream of living in them themselves without major renovations or having them undergo the government-sponsored Tama 38 urban renewal plan.
I learned some lessons on my very first day. I now took care to verify that no realtor was in the picture, but I was still amazed at how many demands and other expensive ploys had been invented over the years by people renting out their apartments in an unregulated rental market. All of these stood between me and the anticipated roof over my head.
This included the heartbreak over a nice apartment in the Florentin neighborhood, which I saw on my fourth day of searching. It had 1.5 rooms and a small, charming balcony. I excitedly told the departing tenant – as had three other competitors, I found out later – that I was interested in moving in. She quickly stated that signing the contract would be contingent on purchasing all her furniture, which comprised a sofa, an Ikea desk, an old heater and two barstools, all for 3,000 shekels. “The first person to transfer me half this amount, in cash or bitcoin, will get the phone number of the landlord to sign the contract,” she declared with the assurance of someone well aware of her power and who, like many others, had chosen to exploit it.
“If someone doesn’t find this to their liking, they can choose to live elsewhere. Central Tel Aviv is not the only location in Israel,” you might say. I also thought this while riding my scooter, making my way back from Florentin through the steamy Tel Aviv summer. The next day I expanded the radius of my search to the range of a half-reasonable bus ride from TheMarker’s offices in south Tel Aviv. My new list included apartments in Ramat Gan and Givatayim, and even one in Holon. This led to a clear improvement in what was on offer: The vast majority were larger than the ones I’d seen in Tel Aviv and cheaper by a few hundred shekels.
But I didn’t want to get a car, which would erase the cost savings of an apartment outside Tel Aviv. I quickly discovered that the demand for apartments in Givatayim is not small either. The Tel Aviv laws of the jungle had arrived here too, with demands for rent paid in cash, for posting guarantees of tens of thousands of shekels and other pre-rental demands such as giving the details of my bank account, as well as that of my guarantor parents. Others demanded I pay to insure the apartment, and even that I agree not to ask the owner to repair reasonable wear and tear.
At the end of my second week of searching, which ended with no contract on the horizon, I was filled with despair. I gave up on most of the expectations I had when I embarked on my journey and extended my budget beyond what I could afford. I learned through my own experience why many people who rent apartments need to pay more than 40% of their income for housing, according to Organization for Economic Cooperation and Development figures. Dry calculations brought me back to a practical conclusion. After a delay of two weeks, I found myself replying meekly to the management company’s representative: “Okay, I’ll pay whatever’s required.”
Should the state intervene?
These travails reflect the dire reality for 750,000 households that rent their homes in Israel. A prominent feature of Israel’s rental market is the problematic power imbalance between landlords and renters. The former control the market, with their advantage only growing in tandem with the rising demand for rental dwellings. The rules of the game are the law of the jungle, determined by the stronger party. Renters often find themselves disadvantaged and devoid of rights when facing owners, with no certainty about the price or how long they’ll be able to stay, and no guarantee about the quality and maintenance of the apartment they rent.
One of the first attempts to address the rules of this game, which came after the widespread social justice protests in the summer of 2011, was a bill defining fair rental practices, promoted by former lawmakers Stav Shaffir and Roy Folkman. The law that ultimately passed in 2017 did not include state intervention in rental rates, but supposedly regulated the relations between renters and owners, mainly regarding maintenance, payment to realtors and a definition of what constitutes a habitable apartment. But four years after the law was passed, its impact can hardly be felt on the ground. One of the main reasons for this is probably renters’ reluctance to take legal action against their landlords, as well as the stiff competition over apartments. Renters prefer compromisng on their rights, since if they don’t, owners will have no difficulty in finding other renters.
Shaffir doesn’t mince words in criticizing Finance Ministry officials, who she describes as disconnected from the realities of life in Israel: “When we first came to this issue and started promoting legislation, there was no regulation whatsoever in the rental market, which was like a jungle, with renters paying dearly for the situation. Despite this, the treasury wanted no regulation, not even recognizing the need for it. Among them, as was the case for most lawmakers who attended the discussions, there were hardly any people living in rentals, so even a minimal understanding of what it means to be in this market was lacking. We saw this during the battles we waged on the way to legislation, battles which significantly limited the outcome.”
“It’s not just the regulation of rent costs, which was left outside the law,” she continues. “One of the clauses we proposed, which seemed completely reasonable to me, was to define a habitable apartment as one that has running water. Trivial, isn’t it? But here too, the treasury opposed this. In one of the committee’s sessions, the budget division representative claimed that this was over-regulation and would place a burden on owners, and that young people buy bottled water anyway. To this day I believe that the main reason this field is unregulated is politicians’ reluctance to interfere with the interests of the stronger side – apartment owners. It’s the same fear that keeps them from really addressing the housing crisis, which requires a long-term holistic view.”
In contrast to Shaffir, there are people who believe that intervention in the rental market is a big mistake that will only further exacerbate the situation and will mainly hurt renters. One of the prominent voices in this camp is Omer Moav, an economics professor at Reichman University (formerly the Interdisciplinary Center at Herzliya) and at the University of Warwick in England. “Everywhere around the world where they tried to install effective regulation in order to reduce rental rates below going market rates, it ended badly,” he says with great conviction. “It leads to shortages, poor maintenance, a black market and to hostile relations between landlords and renters. Overall, this will destroy the market.
“Ultimately, in a free market, people make their choices depending on their abilities and priorities. In this context, in expensive areas people may prefer to rent a small apartment even if it doesn’t meet the standards a legislator deems important. That’s their prerogative. Trying to fix what they consider a market failure is a bad idea that will only hurt renters. The only place for intervention is in issues of safety. The state can ensure through legislation that a property meets safety standards.”
Moav is very critical of the law promoted by Shaffir and Folkman. “Has any renter felt a change in practice? Nothing,” he says. “This is regulation that doesn’t help, it only causes harm. This is not an unbridled market but a non-centralized, free and competitive one.”
But Shaffir raises an argument that is hard to refute: The rental market in Israel is far from being the free market envisioned by Moav. “Saying that the state doesn’t intervene or that it shouldn’t intervene in the relationship between a renter and the apartment owner due to the sanctity of the ‘free market’ is a deception. The state is involved in all aspects of the housing market. It’s not a free market. The state is the one ultimately deciding where apartments are built, whether there is public transportation nearby – issues that impact how these apartments can be used – as well as the size of apartments, which may or may not suit the needs of young people, the elderly or other groups that need rental housing,” she says. She argues that a regulated rental market is part of the reality in capitalist countries that espouse free market ideas, something essential for big cities to flourish around the world.
“The need for state intervention in this market is something that is already understood in the stronger OECD countries, mainly in big cities, where they’ve internalized the importance of renters, who are often an important part of the creative class. This population is usually not the richest one, but it brings cultural richness to a city, turning it into a desirable destination. In the end, it’s in the interest of cities to enable diverse housing alternatives,” adds Shaffir.
Promises of affordable housing
It appears that the state has abandoned the idea of intervening in rental prices, as well as in the relationship between renters and landlords. This is a huge market, generating billions of shekels a year. More precisely, according to the Adva Center on policy analysis, the revenues of private households from rent in 2018 were 17 billion shekels. Investors in rental housing enjoy significant tax breaks compared to other investment vehicles. Landlords are exempt from reporting or paying tax on income that is under 5,000 shekels a month. For anything above that, tax rates are lower than for other income, at only 10%. Many landlords who rent out their apartments for more than the threshold find it easy to evade paying any taxes.
It appears that the government is now devoting most of its resources to encouraging institutional, long-term rentals, which they believe is the real hope for young people who don’t own their own home. However, the way there is a long one. For now, large companies and investment funds are responsible for less than 1% of rental apartments in Israel. This figure reflects Israel’s move away from other OECD countries, where 50-60% of the rental market is comprised by the institutional rental market, in which the state has greater control over the duration and the conditions of renting, and thus on prices.
In 2014, a government company called Dira Lehaskir (“Apartment for Rent”) was founded. Its role was to develop the institutional rental market. However, in the years since then, this company was relegated to the bottom of the national priority list. It has produced so far only 9,000 housing units, including 7,500 apartments for rent (the others are apartments for sale). In tandem, the state has channeled hundreds of millions of shekels in recent years for incentivizing developers in the long-term rental market, through various benefits and tax breaks, tailoring bidding processes so that winners get better returns on their investments. The demand for bids for institutional rentals has picked up recently, but so far, institutional rentals do not constitute a significant part of the market.
In the meanwhile, most of these institutional rental apartments are located outside high-demand areas and are being offered at prices that are too high to help the disadvantaged populations that cannot afford to buy their own home. According to a recent study by the Hagar Center at Tel Aviv University, most of the rental apartments that are built with government support or incentives are being offered at prices that suit only those in Israel’s upper income deciles (seventh decile and up). At this time, two-thirds of renters in Israel come from the bottom 50% of wage earners, defined as households with income of up to 14,400 shekels a month.
“The only solution to the rental market is what is called social housing,” says lawyer and social worker Matan Rabinowitz, who conducted the survey along with Prof. Neta Ziv. “This means public housing for the lower income deciles, who would receive the largest state subsidies, and affordable housing for mid-range deciles so that rent does not exceed 30% of their income. The way to get there is to incentivize the private market to build such apartments, but what happens here is that even the apartments that are built for long-term rental with state support do not suit the deciles that need them, certainly not relative to their proportion of the market, nor their prices.”
Rabinowitz adds that even basic assumptions about the renter population, a group that is constantly growing, assumptions that are the basis for decisions regarding their fate, are detached from reality. “There is a view that a big segment of renters in Israel are young people right after the army, or students living in or around Tel Aviv. But for many households in Israel, renting is not a stage in their life, but life itself. We know that renters are poorer. In fact, 180,000 of these households – one-quarter of the country’s renters – get assistance from the state in order to rent their apartment. By the way, the number of people eligible for such assistance has grown substantially in recent years – by 18% between 2014 and 2018. It’s crazy.
“Ultimately, this population is at the greatest disadvantage in the housing market and it is the one contending with the problem on a daily basis: first, in its ability to rent a dwelling and second, from a legal standpoint, with no regulation of rental prices and duration, or regarding the condition of the property.”