Despite New Law, Israeli Rents Are Rising Rapidly

First systematic survey of market finds that rents have risen as much as 5% in 2018

File photo: the Tel Aviv skyline
Amir Cohen/Reuters

Apartment rentals in Israel rose as much as 5% nationwide this year, with some cities showing double-digit increases and none showing declines, according to the first-ever survey of the Israeli market.

The survey, which was conducted by Ohad Danuss, former chairman of the Israel Real Estate Appraisers Association, found that rents had risen 4.95% on average this year through October for a four-room apartment in 16 of Israel’s biggest cities and 3.84% for three-room units.

The raises varied considerably between markets. In Be’er Sheva and Ashkelon, which experienced the biggest increases, rent on a four-room apartment jumped 16.7% this year to an average of 3,500 shekels ($945) a month, according to the survey.

Tel Aviv remained by far the most expensive city for rentals at 7,000 shekels on average for four rooms and 5,500 for three rooms. But the increases over the last year were relatively moderate, at 2.9% and 1.9%, respectively. In Holon, rents were unchanged for both sizes of apartments.

The sharp rise in rents comes despite the passage in the Knesset 18 months ago of the Fair Rental Law and efforts by the government to encourage contractors to build long-term rental units. Finance Minister Moshe Kahlon has put housing prices at the top of his agenda, but the focus has been mainly on people buying homes, not renting them.

The drive to build more long-term rental housing has so far achieved minimal results. In a country where some two million people rent apartments, construction on only 900 long-term rentals has been completed this year and only 6,000 rentals are in various stages of planning.

Erez Rozenbuch, chairman of the real estate investment trust Merureit, which was formed to develop long-term rental housing, said he was convinced despite the slow start that it was the solution to the problem of rising rents.

“The increase is rents in many cities in Israel testified to the fact that the rental sector is still unstable,” he said. “The situation deters potential renters who feel the trend is going to continue over the next few years. To stop the increases and enable the sector to prosper are necessary conditions in rents that are fair and whose terms are fixed for the life of the contract and includes realistic increases.”

Until Danuss’ survey, which is being published for the first time in TheMarker, there had been no systematic index of Israeli rents. The surveys that are published are usually based on information collected from online classified sites like Yad2.

A clause in the Fair Rental Law that would have required the government to establish a database was removed from the legislation before it was passed. Meanwhile, the methodology used by the Central Bureau of Statistics was found last January to be faulty.

Danuss, who said he planned to publish his index every half year, speculated that one reason for the rise in rents this year was Kahlon’s abortive plan to impose a tax on landlords who owned three or more residential properties.

Part of his plan to increase the supply of homes for sale, the High Court of Justice struck down the way in which it was legislated in the Knesset and the law never took effect. Nevertheless, said Danuss, many landlords expecting the tax to come into force raised rents in anticipation.

Declining housing starts may also have contributed to rising rents by constricting supply. In Ashkelon, for instance, only 98 residential building permits were approved in the first half of 2018, according to the CBS, down from 2,081 the year before.

Another city with sharp increases was Eilat, where rents on two-room apartments climbed 13.5% to 2,500 shekels a month. Four-room units rose 9.3% to 3,500 shekels.

“Eilat registered a big increase in rentals in 2018 mainly because of the big increase in incoming tourism and the number of apartments that were rented out through Airbnb,” said Danuss.

Among other major cities, rents on four-room apartments in Jerusalem rose a modest 2.3% in 2018 and 2.9% for three rooms. In Haifa, rents for four-room apartments shot up 7.7% on average.

Modiin rents increased between 1.1% and 1.5% for three- and four-room units and in Herzliya by 1.9% to 2.3%.