Believe It or Not, the Israeli Rental Market Works Pretty Well

Rental prices should be lowered by selling more land for housing development. Then housing and rental prices will decrease.


“Even a thousand sages couldn’t rescue a stone that a fool throws into a well,” goes the adage.

Two years ago Knesset member Stav Shaffir threw a stone. Actually, she sponsored the “Fair Rent Bill.” In the ensuing two years, much effort has been made to rescue the stone, in vain.

I’m not saying Shaffir is stupid. She isn’t. Moving on: Knesset member Roy Folkman has been trying to save that stone ever since. His latest suggestion is for every landlord to sign a long-term three-year lease and to agree to forgo raising the rent for those three years, in exchange for which they will get free structure insurance for the building from the state. His proposal is meant to replace Shaffir’s bad proposal. But it isn’t good either.

Landlords will simply think ahead and raise the rent for the whole three years. That way they get the higher rent and free home insurance at the expense of the taxpayer. And more bureaucracy will be involved because the state will have to build a mechanism to monitor the landlords and the quality of the dwellings, too.

Folkman proposes that the insurance be handled through a special management company, that would be the address for any problems in rented housing. He has outdone himself. Israel, which is trying to cut back and streamline, should set up a superfluous government company complete with CEO, deputy CEO, their aides, a spokesperson, administrators and secretaries to fiddle with repairs?

Say the electricity blacks out. The tenants will call the management company and demand a repair; after languishing on hold, the tenant will be told that the next available time slot is in two weeks, and the technician doesn’t show up for that either. Since when is a management company affiliated with government considered superior to the fast-moving, competitive private market?

Folkman also suggests setting up a special court for rental affairs, as though Israel needed more lawsuits, as though our courts weren’t already collapsing under the weight of claims.

The third section of Folkman’s proposal is to impose a uniform rental contract that would set standards for apartments, such as minimal size. That sounds terribly advanced, but the result would be that small, “improperly furnished” dwellings would drop from the pool of rental apartments. And that in turn is harmful paternalism that would diminish the supply of homes, boosting rental prices even more.

It is time to accept that actually, the Israeli rental market works pretty well. It’s an advanced market in which large numbers of tenants and landlords meet. The high prices are the result of protracted governmental mismanagement, reflected mainly in failure to allocate enough land for housing development.

Instead of targeting them, we should respect the private investors who bought housing in order to assure a comfortable retirement, and while about it, who are providing shelter to 600,000 families who rent homes in Israel.

Rental prices should be lowered by selling more land for housing development. Then housing and rental prices will decrease.

Shaffir’s bad suggestion from two years ago would have the law force a uniform rental contract for at least three years, at a preset fixed price. That is appropriate for North Korea. Happily, her suggestion fell, thanks to the opposition of Justice Minister Ayelet Shaked. If it had passed, rental prices would be even higher and some of the payments would be made under the table.

To make Shaffir’s suggestion disappear, Folkman proposed alternatives. A few months ago he suggested the establishment of a “government rent registrar.” His proposal fell, and well that it did. Then he proposed that homeowners get a discount on betterment tax, or on city tax (arnona). That proposal also fell, blessedly so. Now he proposes to have the taxpayer finance insurance. That is a bad idea too. As we said, once the stone is down there, not even a thousand Knesset members can rescue the thing.