Forget Tel Aviv, Israel's House Price Boom Is Really in Ariel

Some home buyers are overlooking the Green Line and simply considering the bottom line as they look for affordable housing in central Israel.

Hagai Amit
Hagai Amit
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The West Bank settlement of Ariel, with 20,000 inhabitants, is not on the list of settlement blocs Israel would never forfeit in a two-state deal. Credit: Tess Scheflan
Hagai Amit
Hagai Amit

In the six years through 2013, prices of new and secondhand homes in Ariel rose 104%, according to Housing and Construction Ministry figures. That puts the city-sized West Bank settlement among the top 10 Israeli towns for rising home prices over the period, but it was not the only place in the West Bank that showed such increases. Prices in Betar Ilit climbed 77%, Efrat (in the Gush Etzion bloc) had an 80% rise, while in Oranit the rise was 65%.

Ballooning home prices in Israel have not only spread to the West Bank – in many settlements they have been quietly outpacing increases in the greater Tel Aviv area, in the center of the country.

“In the past two years we have undertaken branding activities here and raised prices by over 35%,” says Arik Vaknish, the franchisee and manager of Anglo-Saxon Real Estate office in Mateh Binyamin in the West Bank. “In the community of Adam, where I live, there are single family homes of 440 square meters on plots of 600 square meters that are being sold for 3.9 million shekels [$1.1 million]. I may not be selling 24 hours a day like in Givatayim or in Modi’in, but we have definitely moved the real estate in the area,” he adds.

“Every developer who built in Ariel earned very good money there,” says Hanan Mor, a developer who is now building a project in Ariel. “It’s a good city for developers. The three components that determine the return – the pricing, the location and the timing – worked out in our favor. Three years ago, we bought the land in the city very cheaply, and its distance from Tel Aviv is identical to that of Hod Hasharon from Tel Aviv. A four-room home in Ariel that two years ago cost no more than 800,000 to 900,000 shekels, today costs 1.05 million. That’s an increase that stems from growing demand and a shortage of supply of apartments.”

So why didn’t more people bid for the land at the time?

Mor: “Fewer people identified the opportunity in Ariel. Developers want to operate in a clear business and regulatory environment. In the real estate sector, where the horizon of projects is for the long term – three to five years – you do not want to operate in an environment of uncertainty, even when the price of the land is not high.”

Is there a difference in the mix of homes in your project in Ariel, compared to projects in the center of the country?

“In Ariel, there is a completely secular majority. The main population growth in the town was a result of the Russian immigration of the 1990s, so you see the same trends as in the rest of the country. As the price of housing has risen, preferences have changed and there is more need for smaller homes.”

The strongest real estate markets in Mateh Binyamin are in communities such as Adam, which is located a few kilometers east of the Atarot industrial zone at the north end of Jerusalem; Oranit, right next to Kafr Qasem; and Nili, north of Modi’in, says Vaknish. A half dunam (one-eighth of an acre) lot in Adam runs to 1.1 million shekels today, without parcelization, which adds another 200,000 shekels, he says. Fourteen years ago, the same property could be bought for 180,000 shekels.

What about more remote settlements, such as Yitzhar? Would you try brokering there?

“There are places where the work is more to market the construction than selling. There’s no buyer traffic there. The demand is from a specific population. It is a very closed society,” says Vaknish.

Fuel for rising prices

The fuel feeding the rise in prices in the West Bank is the same as that powering house price increases all over the country: The supply of homes isn’t keeping up with rising demand from young couples and those looking to move up to a bigger and better property. Still, it’s impossible to separate price rises in the West Bank from the big political and security picture.

The West Bank settlements have enjoyed seven years of relative calm, which has allowed the Israeli public to forget the second intifada. Moving across the Green Line entails a low-risk premium. But there have been times when this premium nearly killed off real estate development in the territories, explains Yossi Baal-Shem, a real estate agent from Karnei Shomron.

“I bought the house I live in – a two-floor, semi-detached home – in 1984 for $60,000. At the same time, an ordinary apartment in Kfar Sava also cost $60,000. My home today is worth less than the apartment in Kfar Sava. The rise in prices here hasn’t matched the rise there,” says Baal-Shem. “There was less demand over the years. You mustn’t forget that there were two rounds of intifada in the middle.”

Another trend favoring the increase in West Bank home prices has been the deadlocked peace talks between Israel and the Palestinians, and the long years that the right has been in control of the government. The threat of an agreement that includes the evacuation of some, or all, of the settlements, has receded to the point that it no longer factors into home prices over the Green Line.

Today, when the first communities in the Gush Etzion bloc mark their 40th anniversary, their legitimacy among the Israeli public has grown. “The price of apartments in Kedumim and Kiryat Arba jumped by 40% to 50%,” says Ronen Weil, vice president of marketing for Amana, a nonprofit organization that builds for the religious-Zionist population all over the country, especially the West Bank.

“In a community such as Revava [west of Ariel, in the northern half of the West Bank], you could have bought a house five years ago for 600,000 shekels, but today the price is 1.3 million shekels,” he says.

Weil asserts that everything that happens in the West Bank property market can be traced back to what is happening in Israel, where prices have been rising sharply over the past few years. Add to that the growing legitimacy the settlements have attained with the public, he says, and you end up with home prices in the West Bank rising even faster than the national average. The biggest increases are in communities in the large settlement blocs, such as the Etzion Bloc, and near the separation barrier.

The growing legitimacy of the settlements may also stem from financial considerations. At a time when the government is unable to meet the growing demand for new housing within the Green Line, it is hard to imagine how it could plan economically to move the estimated 350,000 Israelis living in the occupied territories back inside pre-1967 Israel and provide them with adequate housing. Even those living within the Green Line who oppose the huge budget allocations dedicated to the settlements find it difficult to imagine how the evacuation of the large settlement blocs could be carried out.

“From my real-estate perspective, Ariel is not part of Judea and Samaria,” says Mor, the Ariel developer. “Ariel today is an Israeli city in every way. In fact, it’s a major city with 25,000 residents and a university that attracts young people coming to study – and some even choose to live there. Ariel and Ma’aleh Adumim are, as far as I’m concerned, like towns with the same number of inhabitants within the Green Line – like Nes Tziona, Yavneh, Binyamina and Pardes Hannah.

“It’s not like the small [West Bank] settlements, which is a completely different world – places where, due to government decisions, they invested a lot of money in infrastructure and roads that lead to small communities. These don’t serve the needs of large communities and do not provide an answer for the large numbers of houses that Israel needs. To invest huge amounts developing a road for a community of 200 residents is unfair when the spending comes at the expense of tens of thousands of young couples without homes. This allocation of resources is not right, in my opinion.”

No refuge from high prices

The big rise in prices for housing in the West Bank is bad news for all those who had seen the area as a refuge from the high prices in the center of the country. Oded Revivi, head of the Efrat local council in the Etzion Bloc, moved there in 1994. “We couldn’t afford to buy an apartment in Jerusalem and the price here was attractive. Our initial decision to move here was purely financial,” he recalls.

But today, someone in Revivi’s place back then could never move to Efrat. Even those who are flexible about where the future borders of Israel will lie soon discover that, in order to find an affordable home, they must move much farther out – to the isolated settlements favored by ideological, and often extremist, settlers. Ads on the Internet offer a single-family, 72-square-meter home in Yitzhar, on a plot of half a dunam for 600,000 shekels. The ad also warns that buying the property is contingent in being accepted by the community, adding that prospective buyers should not call on the Sabbath. Considering Yitzhar is only a 40-minute drive from Tel Aviv when traffic is good, the price is tempting.

But in the large settlement blocs along the Green Line, the prices are much closer to Givatayim than Yitzhar. Marketing homes in these blocs is also a process quite similar to sales in Binyamina and Givatayim.

Under these circumstances, it is not surprising that Revivi has great plans for Efrat. “Today, we’re building 1,000 housing units here. We number 10,000 residents and Efrat’s master plan talks about 30,000 residents.”

Like others in the local leadership, he sees no problems in his relations with his Palestinian neighbors. “Maybe because of the economic ties, we have an understanding with the neighbors. The reality is that they say ‘The diplomatic questions worry us less. We want to come home with money and bring food to our children.’ When there is construction they have work, and when there is a building freeze they get desperate,” says Revivi, although it is questionable whether his Palestinian neighbors would really agree with him.

Housing and Construction Minister Uri Ariel (Habayit Hayehudi) says there is almost no construction in the West Bank in the government’s housing plans. But in practice, the number of starts in the West Bank last year rose by 123% from the year before – 2,534 units, up from 1,133. The figures for 2013 are the highest in the past decade. Two thirds of the construction is for homes in the three large West Bank settlements: Ma’aleh Adumim, Betar Ilit and Modi’in Ilit. Almost all of the rest of the construction is in smaller settlements.

Real estate agents, developers and buyers are confident that nothing will spoil their party. They talk in terms of location, price and timing, just like every other real estate market in Israel. They prefer not to deal with the absence of an agreement with the Palestinians, or to the presence of 2.5 million Palestinians just outside their window. But experience has taught that Arab aspirations for independence could very well have an economic influence greater than any other parameter involved.

Baal-Shem, who used to work in Ra’anana, is an exception. “Above all, to live in this area you need to be a believer,” he says. “There were times when people only wanted to flee from here because of the intifada. There were people who bought here and talked only about the compensation when they would be evacuated. Today, thank God, they are no longer here.”

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