Housing Starts in Israel Fell 7% in First Half of Year, in Setback to Efforts to Halt Price Spiral

If pace continues, number will be less than in 2015, far short of the government’s target of 60,000

Apartment buildings under construction in Netanya (archives).
Ofer Vaknin

Finance Minister Moshe Kahlon, who has championed efforts to boost home construction as a way of increasing supply and stopping the upward spiral of housing prices, got disappointing news Wednesday. Although the government may be trying to encourage residential building, at least in the first half of the year, developers apparently had other ideas. Housing starts fell 6.9% for the first six months of the year compared to the period from January through June of last year.

For the first half of this year, construction was begun nationwide on 24,090 housing units, the Central Bureau of Statistics reported. The government has been talking about the need for construction starts on 60,000 housing units a year if the housing shortage and high cost of housing is to be addressed, but if the current pace continues, the number of housing starts would actually fall slightly short of the 50,000 starts for the whole of last year.

A quarter of the starts for the first half occurred in the central district of the country — the area surrounding Tel Aviv, but not within the city itself. That was a 0.5% drop in starts for the district. The Tel Aviv district, where demand for housing is particularly high, saw 16% of the housing starts in the country and an increase in the number of new units on which residential construction began in the first half.

About 30% of the housing starts nationwide were in Haifa and elsewhere in the north, but housing starts in the Haifa district itself declined by 35% and elsewhere in the north by 16%. The Jerusalem district experienced an 18% increase while the southern district saw an 11% decline.

The city of Tel Aviv itself reported 1,443 housing starts, an increase of 16%, in contrast to a decline of 29% in Jerusalem to 1,197 — an anomaly in the capital, where for five years the number of housing starts rose. Netanya was in third place, at 1,034 housing starts, an increase of nearly 80% from the parallel period last year. Another bright spot was Beit Shemesh, just west of Jerusalem, where the 880 housing starts were 3.3 times the pace for the first half of 2015.

Speaking to TheMarker this week, Kahlon said his goal was not only to stabilize housing prices but also to lower them. He spoke as Bank Leumi issued a report on Tuesday forecasting that demand for housing would remain high, that the shortage of housing would persist in the short term and that prices would continue their climb.

It cited Israel’s relatively rapid population growth, low interest rates, low unemployment and the absence of good investment alternatives to residential real estate. The bank also said buyers are not convinced the housing shortage will end anytime soon, which leads them to buy now at any price.

Among other cities where the pace of construction was relatively high, in Kfar Sava, a northeast suburb of Tel Aviv, there were 440 new units on which construction began in the first half of the year, 2.8 times the number for the first half of 2015. In the Haifa suburb of Tirat Hacarmel, there were 539 starts, up 96% from the period last year. Kiryat Gat saw an 87% increase (to 459 new units begun) while Herzilya showed an 86% increase to 442 new starts.

By contrast, in Ashkelon, on the southern Mediterranean coast, where there had been a lively residential construction scene , there was a 19% decline in new starts (to 657 units) and in Rehovot, south of Tel Aviv, there was an 11% decline compared to the first half of last year, to 454 units.

A relatively new source of housing starts is National Master Plan 38, commonly known by its Hebrew acronym, Tama 38. It allows apartment owners to reinforce their buildings against earthquakes, financed by building rights for additional floors that the contractor can then sell. The upgrade can include improvements such as a new facade and the additional of an elevator and parking spaces.