In Israel’s Housing Market, It Looks Like the Age of the Terrible Twos Is Coming to an End

Despised by local officials, small apartments of two rooms were close to extinction. Now they're making a comeback but the prices are steep

Apartment buildings in the neighborhood of Afula, June 14, 2019.
Gil Eliyahu

Is the tiny two-room apartment, which has been on the verge of extinction in Israel for the past several years, about to come back to life thanks to urban planners?

Figures from the Central Bureau of Statistics seem to say yes: Construction starts on two-room (one-bedroom) apartments jumped 56% last year to 1,832 units and it’s the government that’s behind it. City engineers in places like Tel Aviv, Haifa and Ramat Gan, where the two-room phenomenon is most prominent say its due to government planning policies in the wake of the 2011 social-justice protests.

The protests, which saw tens of thousands of Israelis gather for street protests and set up tent cities, had a long list of grievances to animate them. But one of the main ones was the shortage of affordable housing.

About half the two-room units on which construction began last year were located in Tel Aviv (599) and Ashkelon (471). In Ramat Gan, it was just 310 but that was five times the level in 2017. Jerusalem saw starts on 224 units, a three-and-a-half fold rise from the year before. In Haifa the number of starts fell but still reached 120.

In spite of the sharp rise in two-room units, they accounted for just 4% of new residential construction in Israel last year. Four-room units made up 40% of the mix. Nevertheless, the trend is discernible and experts said it was likely to continue growing.

“The fashion of resisting construction of two- and three-room apartments that once characterized the local authorities has come to an end. It’s not suited to the world in which we live today,” said Ariel Vaterman, Haifa’s city engineer.

“Today, we’re requiring a wider range of home size. In new neighborhoods, at least a third of the homes have to be two and three rooms. The idea behind this policy is to ensure neighborhoods don’t become homogenous but offer solutions to a varied population.”

Thanks to resistance to them by municipal authorities, the number of small apartments began to decline in the early 1990s until they nearly disappeared from the scene. In 1980 apartments of three rooms or less were 43% of all new homes; by 2011 they made up just 6% and last year accounted for 7%.

Meanwhile, homes just kept getting bigger: In the six years through 2011, the average size of a new home in Israel grew to 179 square meters (1,930 square feet) from 156, an increase of 12%. At the same time, prices shot up 54%.

What was behind the trend? Deputy Finance Minister Eli Cohen angrily explained it three years ago when said, “Many mayors don’t want young couples in their town because they require so many city services and they don’t want the elderly because they require welfare services and get discounts on municipal taxes.”

The policy was hurting big segments of the population, Cohen said.

“We’ve reached the point that the elderly and young families are forced to live in big apartments of four or more rooms. A young couple is not only buying a home that’s too expensive for them but taking out a big mortgage, are saddled with bigger house committee (condominium) fees and pay more municipal taxes for floor space they don’t really need,” Cohen said.

But if it made sense from the perspective of city hall, it made little sense from the perspective of the housing needs. Rising divorce rates and longer life expectancies that mean more older couples and singles, among others, have increased the demand for smaller apartments.

“On a nationwide level, more than 92% of all the homes built in the 2000s were four rooms or more. That was the case even though at least 40% of households have just one or two people,” said Chaim Fialkov, a planner who helped developed the post-2011 policies favoring smaller homes.

Thus, said Hila Lubanov, of Tel Aviv’s strategic planning unit, the change in attitudes isn’t just due to pressure from the government but in response to the market. “The stock of small apartments that have been built in Tel Aviv has been falling because of market demand and in line with the city’s changing population,” she said.

She said there’s still demand in north Tel Aviv for bigger units; there’s more interest in smaller units in the central and southern part of the city, “Demand for small apartments in Tel Aviv is significant and the price per square meter is higher than for big apartments,” she added.

Yehuda Gorsd, CEO of Y Box, which has built several residential projects in Tel Aviv, says most of the buyers of small apartments are foreign residents looking for a vacation apartment or parents buying starter apartments for their children in the future.

Unfortunately, there’s also a negative push factor behind smaller apartments: After a decade of soaring housing prices, they offer the only affordable option for many people who want to own their home.

“It appears that the financial difficulty for many of buying or renting big homes has overcome the desire to broadcast a lifestyle of well-being and affluence. Prices are forcing people to compromise, and to live in fewer square meters,” said Prof. Rachelle Alterman, a senior researcher at the Technion-Israel Institute of Technology’s Samuel Neaman Institute for Advanced Studies in Science and Technology.

It’s ironic then that today’s smaller apartments aren’t so affordable. Roni Cohen, CEO of Eldad Marketing, noted that in the center of the country, where their supply and demand is greatest, prices are quite high. That’s because of high land prices.

“If you want to create a real solution, the government needs to encourage construction of small apartments in cities like Harish, Modi’in, Rosh Ha’ayin and Kiryat Gat, where land is cheaper,” he said.

Tamir Ben Shahar, CEO of the market research firm Czamanski & Ben Shahar, agrees that cost has played a role in the rise of the small apartment. But he said that changing attitudes toward living space and the emergence of what he called the “selfie generations” was also a factor.

Meanwhile, the assumption that people who live in small homes must be in financial straits is no longer as widespread.

“Young people are less concerned with the size of their home. They want a place to sleep and the main thing is to be in the center of the city. It reflects their behavior and their worldview of a generation with different preferences,” he said.

“They’re out of the house more, spend more time at leisure and work less. They’re not looking for a big kitchen or spacious living room,” said Ben Shahar.