Tel Aviv Tries to Put Some Sanity Into the Apartment Rental Market

A pilot program offers tenants fairer contract terms while saving landlords the hassle of looking after their properties.

Unusual advertisements began appearing several months ago on websites and Facebook pages frequented by apartment hunters.

One thing out of the ordinary was that the ads weren’t put up by landlords, they were put up by the Tel Aviv municipality’s housing administration. Not only that, instead of focusing on aspects like the number of rooms or whether there was an elevator, the ads highlighted the fair terms of the rental contract that tenants had been invited to sign.

Anyone wishing to continue the process was invited to see a handsome new project just completed on 20 Akiva Eiger St. in the heart of south Tel Aviv’s Neveh Sha’anan neighborhood.

Omer Reznik, who works in high-tech, moved in a month ago with a roommate after finding an ad on Facebook. He says the two are paying a combined 3,550 shekels ($1,017) a month for a three-room, 80-square-meter apartment without a balcony.

The contract signed by Reznik, which is the same for 20 more of the 42 apartments in the building, includes an option to extend the lease up to three years via two consecutive renewal options. There’s also a fixed 5% annual rent increase, a promise by the landlord to keep to certain maintenance standards, and protection against sudden eviction while the contract is in force.

These terms were designed by the city’s housing administration in conjunction with NHS, the business arm of the Tel Aviv University student council, and the apartment owners. In return, the owners are spared the hassle of finding and dealing with tenants, with NHS serving as subcontractor for the fair-rent project.

Outside the box

“The initiative is the outcome of thinking outside the box. We developed a model that protects tenants and is adapted to cope with the fluctuations in the city’s real estate market,” says Asaf Zamir, Tel Aviv’s deputy mayor who launched the project as part of the activities of the city’s Center for Young Adults.

“I have no doubt that young people are looking southward. Neighborhoods like Neveh Sha’anan are the focus of the municipality’s development plans, and now is the time to go there. NHS’ activity will also provide landlords a steady and secure income while letting tenants know it’s possible to maintain a balanced market under supervision.”

But Zamir says it’s premature to deem the program a success. “It’s too early from the standpoint of the organizational experience implemented at Eiger Street. All this preoccupation with rental housing is new, but as it goes deeper into the public discourse, more homeowners will want to adopt the fair-rent model,” Zamir says.

“We’re being forced to do this due to the absence of any arrangement by the government for renting homes in the private market. We’re the only country in the Organization for Economic Cooperation and Development without any regulations like this, and it’s a disgrace.”

The idea of locating the project in Neveh Sha’anan, a neighborhood whose gentrification process got frozen, can’t be overlooked. But can the model also be applied in more desirable neighborhoods?

“The building at 20 Eiger St. is the result of a bizarre market failure. Purchasing groups began organizing to build collaborative projects there a decade ago, before the neighborhood became what it is now, under the assumption that its proximity to the center of Tel Aviv would eventually attract renters. The result was a collection of lovely projects in a neighborhood nobody wants to live in. In any case our goal is definitely to expand. We set ourselves a target of renting several hundred apartments through this model within two years.”

Successful pilot

According to Noam Bar Levy, who is involved with the project on behalf of the Center for Young Adults, “We decided to go ahead with this initiative because the great mass of apartments in Tel Aviv is in the private rental market and not the kind of apartments the municipality would ever build.

“In the case of 20 Eiger St., we contacted the builder, who put us in touch with the purchasing group. When we started to look, this was the building at the most advanced stage in terms of occupancy permits .... We found that members of the group were willing to talk.”

As for moving ahead with other buildings, Bar Levy says two options are being examined. The first is to duplicate the Eiger model by getting ahold of developers and purchasing groups before a building is tenanted and offering them to rent out all or most of the units. The second is to do something on a wider scale, not related to one building or another, “but to approach owners of rental apartments throughout the city and suggest letting us manage them under fair rent conditions,” Bar Levy says.

“This is a pilot program and there are still many open questions about the model. But right now we’re viewing it as a successful pilot program that needs to spread to more apartments in other parts of the city and not be limited to just Neveh Sha’anan,” Bar Levy says.

It’s easy to see why this type of contract appeals to tenants, but is it worthwhile for a landlord to cooperate and willingly impose limits on himself in the sizzling Tel Aviv rental market?

According to Ofer Shahak, who lives in the building and whose family owns two properties for rent there, the answer is yes. “The price offered landlords in the agreement is more than reasonable, in line with market prices, so landlords don’t have the feeling they’re forfeiting anything,” he says.

‘Going beserk’

Still, landlords face restrictions that don’t exist in most rental contracts.

“True, the contract prevents the landlord from going berserk [on rent hikes], but the index of rental price increases doesn’t currently exceed 5% in any case, so there isn’t any real concession by the landlord.

“The tenants, meanwhile, enjoy a sense of security. The landlord commits to a long-term contract, but the fact that the contract encourages the tenant to stay is also good for the owner because what every investor ultimately wants is a good occupant who pays on time and stays as long as possible.

“And if we add that there’s a company that saves him the hassle of dealing with the property – something that often takes up a lot of time – this is an enormous benefit. A building that’s mostly geared toward rentals could deteriorate rapidly. Meanwhile, we see that the building is kept up nicely and the atmosphere is good.”

Shahak admits that the neighborhood considered among the most backward in Tel Aviv was a main factor motivating investors to cooperate with the project.

“Homeowners understood that the activities of the municipality and NHS, including advertising the project on their own platforms while stressing the contract’s innovative aspect, provided high added value from their standpoint, because bringing in quality tenants isn’t a simple matter,” he says.

Shahak says the model might be able to work in more upscale neighborhoods. “It ultimately depends on the dynamic of the [investor] group, and our group was excellent,” he says. “We finished on time and within budget, and people aren’t uptight over every last shekel. It could work anywhere as long as the investors are calm people with a long-term outlook.”

Nir Keidar