Israel's Latest Plan for Lowering Hotel Rates: Build More Hotels

Tourism Minister Yariv Levin wants to cut the red tape and speed up construction.

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Occupany rates are up in Tel Aviv hotels.Credit: Daniel Bar-On

The Tourism Ministry is embarking on a new program the lower hotel rates by building more rooms and speeding up construction.

Israel is expensive for tourists. The World Economic Forum says the average room rate in 2013-14 was $201.30 a night, making Israel the 19th most costly destination in the world, and more expensive than Japan, Germany or the United States, though cheaper than Switzerland.

“The time required to build a hotel has turned into an impractical process and has made hotel-room construction to close to zero. That’s the biggest obstacle to lowering prices because if there’s not enough supply, there’s no competition,” Tourism Minister Yariv Levin told TheMarker.

His ministry’s plan is to simplify the process of building a new hotel and creating fast-track channels for acquiring approvals. The plan will also require developers who have received building permission but haven’t begun construction to move forward.

“I sit on the housing cabinet in which we’re discussing the exact same things – how to shorten procedures, fix timetables, cut red tape through legislation to have the process move faster,” Levin said. “If today it takes 15 years to build a hotel in Israel, a significant reduction in the time would change the entire situation.”

This won’t be the first time the tourism ministry has sought to bring down hotel rates. Four years ago it formed a committee to examine the subject under then-director general Noaz Bar-Nir, which produced recommendations after a year of work. The government approved the plan in principle, but did nothing to actually implement it.

The Bar-Nir proposals were based on the way to bring down rates being to increase the number of rooms, but said the problem in developing more rooms was the industry’s low levels of profitability. The committee’s solution was to help hotels reduce operating costs, such as Israel’s especially high security costs, by cutting back regulations and reducing arnona (municipal taxes).

“I wouldn’t say there’s nothing in the recommendations and that they should be thrown away, but I think we need to say forthrightly that putting all these ideas into effect would only bring a change of a few percent,” said Levin.

Israeli tourism has been in the doldrums since Operation Protective Edge last summer, the 50-day war Israel fought with Hamas in the Gaza Strip. Most of the problem, industry sources say, is due to lingering security concerns, but the high cost of a vacation in Israel is certainly another.

The WEF survey said overall, Israel was the sixth most expensive destination. That put it well ahead of neighboring and competing destinations like Turkey (48th most expensive), Jordan (72) and Egypt (140). Turkey hosted 37.8 million tourists in 2013, Egypt 9.2 million and Jordan 3.99 million, while Israel had 2.96 million visitors, according to the WEF.

One of the Bar-Nir recommendations that was put into effect is a system for rating hotels by the star system, but only 26 of more than 300 hotels have agreed to participate in the program, arousing threats from the ministry that it might make it mandatory.

“Ratings will prevent hotels from crowning themselves with higher ratings than they deserve and allow them to charge nigher rates to guests,” said Levin.

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