Study: Poor and Rich Israelis Increasingly Live Apart

In the past 30 years the proportion of upper-income households in the high-income neighborhoods of Jerusalem, Tel Aviv, Haifa and Be’er Sheva and the percentage lower-income households in the cities' low-income areas doubled.

Moti Milrod

The dozens of drivers from the Dan bus cooperative who built homes in the namesake Shikun Dan neighborhood in northeast Tel Aviv in the 1950s and ‘60s probably never imagined the area would one day be the province of the wealthy.

Shikun Dan has been tony for years, but new figures from the Central Bureau of Statistics show that wealthy residents are increasingly moving in, driving out the less wealthy inhabitants. In 1983, the proportion of Shikun Dan’s households reporting income of at least twice the national median wage was 37%. By 1995, it rose to 50% and in 2008 it was 60%.

Haifa’ Kiryat Eliezer followed a similar path, but in reverse. Built as a blue-collar neighborhood, today most of its residents are among Israel’s poorest. In 1983, 38% of Kiryat Eliezer’s households earned less than two-thirds of the median wage; by 2008, that proportion had increased to 53%.

Despite the extreme differences between Shikun Dan and Kiryat Eliezer, they and at least a hundred more neighborhoods in Israel’s main cities are going through the same process of increasing residential segregation and homogenization along ethnic, racial, religious or, as in the above cases, economic lines.

A study by Maor Milgrom of the Institute for Structural Reforms, whose conclusions are being published here for the first time, found that Israel’s growing socioeconomic inequality has been accompanied by increasing segregation in most of the country’s most and least expensive neighborhoods. That is, the poorest neighborhoods are home to an increasing proportion of people who are considered poor, and an increasingly large percentage of the residents of wealthy neighborhoods are considered rich. Milgrom’s study was of Israel’s four biggest cities: Tel Aviv, Jerusalem, Haifa and Be’er Sheva.

Is this necessarily a bad thing? After all, many people —- rich and poor — feel comfortable in an environment they identify with.

“Various studies point out that economic segregation can increase the advantages that rich households enjoy and [decrease] the opportunities available to poor households. Economic segregation can contribute to inequality in education between poor and rich and increase the advantage that wealthier households have in the form of preferential connections,” says Milgrom.

In addition, he says, income inequality between neighborhoods often lead sto inequality in the amount of influence their residents have on decision makers. That in turn causes unequal allocation of resources by local governments. The growing segregation of residential areas acts to further increase income inequality and to extend its effects into other areas such as health, education and the environment,” he says.

Milgrom used the Residential Income Segregation Index to measure the level of economic segregation in the cities studied, derived by adding the share of upper-income (at least double the median) households in mainly upper-income neighborhoods and the share of lower-income (two-thirds or less of the median) households in mainly lower-income neighborhoods. The index is on a scale of 0 to 2, with 0 being complete equality and 2 being complete segregation.

U.S. levels of economic segregation

The results show that in each of the four cities, residential segregation rose since the early 1980s. Surprisingly, the city with the lowest segregation level today is Tel Aviv, with only 10% of upper-income households in the mainly upper-income neighborhoods and 20% of lower-income households in the lower-income neighborhoods and an average segregation index of 0.3. Nevertheless, this reflects an increase in segregation from an average of 0.22 average in the early 1980s. The city with the greatest amount of segregations is Be’er Sheva, with an index of 0.65 — more than five times the level measured in 1983 — 0.12. Haifa and Jerusalem were in the middle: For both, the average RISI score was 0.46.

Summing up the findings on a national level, based on the four metropolitan areas, reveals that the segregation index rose from an average of 0.26 in 1983 to 0.43 in 2008, an increase of 65% in the level of segregation.

The percentage of high-income households in high-income neighborhoods nearly doubled, from 7% in 1983 to 13% in 2008, says Milgrom. At the other end of the spectrum, the proportion of lower-income households in lower-income neighborhoods rose from 19% in 1983 to 30% in 2008.

“These results are similar to the findings of a segregation study conducted recently in the United States on the 30 largest metropolitan areas in the country, in which the [segregation] index rose from 0.32 in 1980 to 0.46 in 2008,” he said.

“In a country that is trying to deal with such large dimensions of inequality such as in Israel, the process of economic segregation we found is not just a mirror image of the existing economic inequality between households, but also point out a negative phenomenon that exists in its own right, which exacerbates the socioeconomic inequality in many ways,” says Elli Gershenkroin, the head of the Institute for Structural Reforms.

“The inequality between the income levels of the residents of the various neighborhoods leads to unequal investment of resources on the part of the local authorities. Significant gaps in political capital of the residents, in their access to centers of power and their public influence, could very well lead to unequal allocation of public resources,” he says.

The wealthier residents will benefit from parks, public buildings and improved infrastructure; while exploiting their influence to prevent the building of institutions they do not want in their neighborhoods, he says.

The findings are the result of policies that have neglected the need to develop poor neighborhoods and reduce inequality. Gershenkroin says his institute has developed plans for urban renewal, based on significantly increasing the building rights in the poorest neighborhoods, in an attempt to promote new construction there. The state and local government must promote affordable housing projects and public housing in new projects in the city centers and neighborhoods, along with urban renewal tools and planning in order to create a mix of housing appropriate for different groups and needs, he says.

“The local authorities must stop allowing the building of closed and homogenous exclusive neighborhoods, which increase the concentration of existing wealth. The state must recognize the importance of the issue, its social implications and the priorities that stem from it,” he said.

Growing inequality

Housing prices are a reliable symptom of the social dynamics in neighborhoods, cities and various regions. In this way we can analyze the internal relationships between different neighborhoods inside cities and between cities. In recent years housing prices have risen significantly in the two biggest cities that are outside of the center of the country, Haifa and Be’er Sheva. Both cities have shown an identical, 72% increase in home prices from the end of 2008 to mid-2014, reports the chief government assessor.

The average price of a four-room apartment in Be’er Sheva reached 851,000 shekels ($221,000) in the third quarter of 2014, while in Haifa the price for a similar apartment was 1.277 million shekels. The prices, and increases, may be impressive, but they hide the negative dynamics that have been going on for years and characterize the north and south.

With a 30-year perspective, relative housing prices in these two cities are actually falling steeply compared to the prices in Tel Aviv. This stands out in particular in Haifa, which until the 1980s was an economic powerhouse too, based on traditional industries, oil refining and petrochemicals and the port. In the 1980s, housing prices in Haifa were at a level of 70% to 80% of the prices of similar units in Tel Aviv. In the 1990s, when the privatization process picked up steam and the importance of traditional industries started falling, the prices in Haifa fell to levels of 60% to 70% of those in Tel Aviv. These trends have only gotten worse, and now housing prices in Haifa have stabilized at about only 40% to 45% of those in Tel Aviv.

Be’er Sheva, as opposed to Haifa, never was a true economic center on a national level, so the relative level of housing prices there, compared to Tel Aviv, remained stable around 50% to 60% of the prices in Tel Aviv in the 1990s; and today they are around 35% to 40%.

Not surprisingly, we see a continued trend of the richer population moving — as well as for younger and more educated people — from the periphery toward the center of the country. These groups are being replaced by a poorer and weaker population, who cannot afford the high real estate prices in the center of the country.