Owning a Home in Israel Is Less Affordable, Study Shows

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New upscale housing under construction in north Tel Aviv. Credit: Nir Keidar

Israelis had to work nearly 11% more to own a home in 2012 than they did eight years earlier, the Bank of Israel said in a study released on Sunday.

The central bank estimated it took 8.1 years of net earnings for the average Israeli household to buy a home in Jerusalem in 2004; by 2012 it required 11.1 years while in Tel Aviv, the figure rose from 6.7 years to 9.1 years. Only in the Haifa area was it slightly easier to afford a home, with the number of years of income falling from 5.4 to 4.9. Nationwide, the figure climbed to 6.8 years of income from 6.1 years.

The figures come as the government grapples with how to contain rising home prices. In fact, the Bank of Israel data probably understates the growing cost of home ownership as prices have risen since 2012 while wages on the whole have stagnated.

Surprisingly, the cost of renting, measured in terms of household income, remained the same during the eight years. In 2004, households on average paid 24% of their total income for rent, with the proportion falling to 21% in 2008 and rising back to 24% in 2012.

The Bank of Israel found that there had been no change in household density — the number of people living in an apartment — in the eight years. However, in 2004 the average rent swallowed up only 32% of the average monthly salary, compared to 37% in 2012. Like home prices, Jerusalem was the least affordable city for rents based as a percentage of salary.

The study, which appears in the bank’s latest Recent Economic Developments report, found that while the highest home prices and rents were in the Tel Aviv area, the Jerusalem district had the least affordable homes because the capital and its environs has the highest prices relative to household income.

By contrast, the Haifa district was the most affordable, even though it doesn’t have the lowest home prices, because household incomes there are high relative to home prices.

It took an extra 1.1 years of income to buy a home in both the central and southern districts between the 2004 to 2012 period, rising to 6.6 years and 5.5 years, respectively.

The Housing and Construction Ministry’s quarterly reports, which also measure home affordability by the number of monthly salaries required, use different data for income. The Bank of Israel takes into account total household income from all members of a household and all sources of income, not just monthly wages as the Housing Ministry does.

The central bank says its measure provides a better gauge of affordability since costs are typically borne by all breadwinners and all sources of income.

However, using monthly take-home salaries without other income, the situation is much more worrying: In the Jerusalem district the number of years of income, assuming there are two breadwinners, jumped from 9.1 years in 2004 to 12.7 years in 2012. In Tel Aviv, the increase was from 7.5 years to 10 years.

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