In Israel, Well Off Still Means Too Poor to Buy an Apartment

With home prices rising 13 percent in a year, a quarter million Israelis rushed to take part in the lottery that will give winners a discount of up to 1 million shekels

Adi Cohen
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Roei Elba, Tel Aviv.
Roei Elba, Tel Aviv.Credit: Ofer Vaknin
Adi Cohen

‘We’ve always rented, and for 13 years we’ve been in the same three-room apartment in north Tel Aviv; our children are now teenagers. Before we took the apartment, we looked to buy one in the same area, but the prices seemed astronomical,” says Nofar, who asked that her last name not be used.

“As two self-employed people with no help from our families, we had very few options, so we decided to wait. We wanted to grow our nest egg so that we could buy an apartment, whether as an investment or for living in.”

After suffering the cost of waiting, Nofar, her partner and a quarter million other Israelis pounced on the government’s recent lottery that offered apartments at cut prices.

“About a year and a half to two years ago we resumed our search, quickly discovering our catastrophic situation,” she says. “Apartments we had seen a decade and a half ago more than doubled in price, and even though our budget grew, our dream of owning an apartment receded. And while we were searching, it seemed prices were still rising.”

Of course, the immense response to the lottery isn’t an expression of great faith in the government; it reflects growing despair.

The 10,000 lucky winners will enjoy a discount ranging from 300,000 shekels ($94,000) in the Ashkelon area down south to more than 1 million shekels in the Tel Aviv area. And there will be smaller lotteries in the coming months.

The Central Bureau of Statistics says housing prices rose 13 percent over the past year. In the center of the country, including cities other than Tel Aviv such as Netanya, Kfar Sava, Rosh Ha’ayin, Petah Tikva, Rehovot, Yavneh, Gedera, Ramle and Lod, the figure was 14.5 percent.

The state’s lack of a proper plan to address this has driven many people to action. For over a year Tomer Tsur, 30, and his wife Netta Lavi have been looking to buy a four-room apartment in Tel Aviv suburb Givatayim, where they currently live, not far from relatives who help with their young daughter.

Tomer Tsur, his wife Netta Lavi nad their daughter, Givatayim.Credit: Nir Keidar

“We’re upper middle class, maybe higher. I work for a high-tech company and my wife is a civil servant; we have good incomes, and our nest egg is commensurate with that,” Tsur says.

“Other than the location and a parking spot, our demands aren’t excessive. We don’t want a particular neighborhood or special amenities; the apartment doesn’t even have to be renovated. All we want is a roof over our heads near our family, letting us grow into it without having to move every few years.”

But after a year of intensive searching, the two realized that even though their dream seemed reasonable, even modest, it was eluding them. “In the whole period we didn’t see one apartment we could afford,” Tsur says; the range went from 2.7 million to 3.2 million shekels.

So with prices running amok, they suspended their search – but instead of frustration, they’re exuding optimism. “I believe that even if it takes a few years, housing prices will eventually come down,” Tsur says. “What we have now is a bubble that I have no doubt will burst.”

It doesn’t seem that Tomer has many partners in his optimism. “In recent decades, periods of rising prices were characterized by increases of 8 to 10 percent, no more, so what’s happening now is definitely unusual. Even more worrisome is that it might get worse,” says Haim Mesilati, the head of the Real Estate Appraisers Association.

He believes the current craze hasn’t yet peaked. “In most cases, such increases stem from economic or political instability, or from a lack of trust in the government’s ability to bring prices down. Psychology is a significant factor, and if people believe it’s better now than later, when prices are even higher, they’ll rush to buy,” Mesilati says.

“That’s exactly what’s happening now. Even though we’ve had a government and relative stability for a while now, it seems the distrust is still there. The public isn’t convinced by statements and promises by politicians, and prices are surging.”

Prof. Danny Ben-Shahar, the head of the Alrov Institute for Real Estate Research at Tel Aviv University’s Coller School of Management, also subscribes to the psychology theory; more specifically, the notion of a self-fulfilling prophecy.

Prof. Danny Ben-Shahar, the head of the Alrov Institute for Real Estate Research at Tel Aviv University’s Coller School of Management.Credit: Eyal Toueg

“People running to buy today increase demand, driving prices up. Last year many households’ expectations changed. Starting when Moshe Kahlon was finance minister, the public felt that price increases and housing were being dealt with, or at least there was intent to deal with them,” Ben-Shahar says. Kahlon was finance minister from 2015 to 2020.

“But over the past year the public has been conveying its belief that this issue isn’t receiving the same attention, that the government has no real plan to address market failures and housing prices.”

The results are harsh, Ben-Shahar adds. “From the beginning of 2021 we’ve witnessed a drastic rise in households’ difficulties in entering the housing market, particularly in securing the initial financing that lets people obtain an affordable mortgage.”

He says a household needs a 983,000-shekel down payment to buy an average four-room apartment. At the beginning of 2021 this figure was 768,000 shekels. To calculate these numbers, Ben-Shahar took into account apartment prices in Israel’s 12 largest cities and the average salary, while assuming that the monthly mortgage payment was no more than 30 percent of the average household income.

This means that a young couple that started looking for an apartment earlier in the year but delayed will have to bring another 18.5 percent for the down payment, he says.

Southern Tel Aviv.Credit: Tomer Appelbaum

The surging center

The center of the country has seen the most dramatic increase in housing prices; realtors have reported unusual spikes over short periods. “It seems that anybody who stopped to catch their breath and delayed their purchase over the past year suffered great losses in this regard,” says Ron Landsman of Remax Supreme in Petah Tikva.

“We had quite a few cases of young couples who took their time to deliberate and then somebody else came in with a high bid. In other cases, sellers decided to raise their asking price mid-process, even by as much as 200,000 shekels within months.

“In many of these cases, the sellers were looking to move apartments, realizing that their next property would be much more expensive than they thought, so they raised the price of the one they were selling. Or they got cold feet and canceled the whole deal.”

According to Landsman, price increases in Petah Tikva last year ranged from 16 percent in older neighborhoods near the city center to 20 percent in newer neighborhoods, chiefly Em Hamoshavot, Neveh Gal and Kfar Ganim Gimel. “I believe that a big part of this stemmed from the pandemic and the fighting in Gaza,” he says.

He believes this raised demand for apartments with a rocket-proof room, and for newer and roomier homes with balconies or gardens.

“With properties like this, demand in Petah Tikva is much higher than supply,” he says. “You can see this in the ratio between people buying in the city center – where 65 to 70 percent of buyers are people looking for larger apartments – and the number of young couples, which has dropped considerably.”

Realtors in Rishon Letzion, Netanya and Rosh Ha’ayin are reporting similar trends. According to Orel Peretz of Remax Trend in Rosh Ha’ayin, the place with the highest price spike was the new neighborhood of Ne’ot Afeka in Rosh Ha’ayin, which brought in buyers from the entire coastal plain including the greater Tel Aviv area. Price increases reached 25 percent.

The Naveh Hadarim neighborhood in Rishon Letzion.Credit: Ofer Vaknin

She cites a four-room apartment she sold just over a year ago in Ne’ot Afeka for 1.9 million shekels; a similar home would now cost at least 2.4 million shekels.

“Most people now buying apartments in this neighborhood are selling a home they already own, whereas young couples tend to search in older neighborhoods,” Peretz says. “But the growing prices in the new neighborhood have had an impact on older ones too, with prices rising 10 to 15 percent.”

For the same reasons, demand is climbing in Rishon Letzion, too, largely for private houses, says Sivan Cons, the manager of Anglo-Saxon Real Estate in the city.

“In some neighborhoods, mainly in the city’s eastern end, houses that cost 3.5 million to 4 million shekels in 2020 are now going for around 5 million shekels,” she says. “On the western side of the city there are houses whose value jumped half a million shekels, even 1 million, in one year.”

Shosh Arar, a real estate consultant at Anglo-Saxon’s Netanya branch, notes a similar surge. “There have been dramatic price increases in the large and prestigious apartments on the city’s beach front,” she says.

Cons and Arar attribute this to the transition to working from home as well as the modest supply of properties such as beach front apartments, private houses and penthouses with a garden or large balcony. The rising prices in this segment didn’t need much time to spill over into the city’s older apartments, Cons and Arar add.

Rothschild Street in Rishon Letzion, 2018.Credit: Eyal Toueg

“In Netanya, investors and young couples are the main competitors for older apartments in the city center, which sell for around 1.5 million shekels. Even though increases in this area were smaller, prices still climbed by at least 300,00 shekels over the year,” Arar says.

“With prices rising in the upscale market, lots of people seeking to upgrade recently found that the cost of upgrading given what they’d get for the older property was bigger than they thought. As a result, some raised their own asking prices, with other people who had intended to sell pulling out, in turn reducing supply.”

Amid the rising demand and faltering supply, the rush to take part in government lotteries for cheaper housing isn’t surprising. “For six years I’ve been managing the biggest Facebook forum for Mechir Lamishtaken,” says Shimi Adziashvili, a senior official at Israel’s mortgage consultants’ association, referring to a project offering affordable housing to first-time buyers. “And I see the pressure and the rush that’s taking place.”

That Facebook forum also publishes information on newer plans that followed Mechir Lamishtaken.

“It’s insane. So if we’re talking about rising prices, I think this rush says it all. There’s no website that concentrates all the government’s information. I saw this when friends and customers approached me nonstop. But what’s happening now is unusual – it’s crazy. I get dozens to hundreds of calls a day,” he says.

“Even though discounts in these lotteries are smaller than before, and the number of available apartments is lower, people just want to buy anything available, regardless of whether they intend to live there. The main thing is to have an apartment. Since the beginning of the pandemic, prices have risen 17.5 percent, with people despairing despite the government’s promises to reduce prices.”

Abandoning renters

The government, however, is for the first time in decades providing good data on the sale of land to contractors and the number of new construction sites. These developments will increase supply.

But this will take time, and prices will probably continue to climb. In fact, the government’s only significant step in recent months to combat the surging prices has been to push investors out of the market.

This was achieved by raising the purchase tax on investment apartments, and by the central bank’s ban on leveraging an existing apartment in order to buy another one for investment purposes. But the result, as predicted by many experts, is the opposite of the one desired: Renters get stung.

“These two moves didn’t remove investors from the market and only helped raise prices even more. The change in the Bank of Israel’s regulations limited investors’ chances to get bank funding, sending them to nonbank channels, where interest rates are much higher,” Azdiashvili says.

“Thus, despite the government’s expectations, its steps didn’t make investors despair; they simply had to pay more. The rising costs of these transactions are passed on to the cost of buying or renting an apartment.”

Mesilati of the Real Estate Appraisers Association agrees, describing a further negative effect: the growing competition between investors and first-time buyers.

“An investor with limited capital who faces a steeper cost due to higher taxes and the need for a non-bank loan will target cheaper properties that attract people buying their first home,” he says. “But here too an investor will have flexibility compared to a young couple who have saved every shekel to buy an apartment.”

Mesilati says the person sure to take a hit is the one renting an apartment from this investor, who, having to pay more, will want to maintain an adequate return on their investment.

Roei Elba can attest to this. For three years he has been renting a two-room apartment on Tel Aviv’s Frishman Street of some 70 square meters. He has been paying 5,850 shekels a month.

“It’s a relatively old apartment and I knew from day one that it was going to be sold. I was happy to learn that the new owner would continue to rent it out,” he says.

“But after he consulted with the broker, he told me he was raising the rent to 9,000 shekels. As the manager of a nonprofit organization who earns far less than somebody in high-tech, I can’t pay that much, so for the last two months I’ve been looking for another apartment.”

The scale of this rent increase, which has Elba looking for extra ways to earn money, is unusual but undoubtedly reflects a trend. Nofar and her husband, who live a few streets north of Elba, had a similar experience.

“During our search, which has been unfruitful so far, the cost of renting has been affected by these insane increases,” she says. “Just in the past year our rent rose 500 shekels a month, and that’s considered reasonable in the area we live in,” she says.

“We know it won’t stop there and our turn will come. When prices spike at both ends, we feel things are closing in on us from all sides.”

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