The war has created an economic precedent in Israel with high interest rates failing to deter homebuyers and halt housing price rises. Housing prices have jumped 4.5% since the outbreak of the war in October 2023.
Apartment prices in the first quarter of 2024 rose at an annualized rate of 12%, and there is clearly a connection between this alarming development and the outbreak of the war. In the eight months preceding this increase (from March to November 2023), housing prices fell by about 2.5%. A month after the war, they began a renewed take-off, which brings the market back to 2021-2022 levels, when housing prices rose at a double-digit percentage annually.
Why has this been happening? Housing prices in the Israeli real estate market began falling in 2023, mainly due to high interest rates and not because of any new policy introduced by the government. On the contrary. The government continues to implement the long outdated policy introduced by then Minister of Finance Moshe Kahlon nine years ago. This mainly involves apartment lotteries for young couples, distancing investors from the market through higher taxation, and increasing land planning and marketing quotas.
This policy failed during the Kahlon period and has done so time and again under his successors at the Ministries of Finance and Construction and Housing. But this does not prevent the current government from persisting with these policies. What moderated housing prices was the Bank of Israel's interest rate hikes in 2022-23.
The desperation of the apartment buyers
What has changed since the start of the war is the insights considered in the thinking of budding homebuyers. The first insight is that it is better to buy an apartment now, regardless of the interest rate, because in the future the economic situation will get worse. The second insight is the fear that the supply of apartments will decrease, due to the severe crisis in the building industry and lack of construction workers, thus pushing up prices. The third insight is that there is not no housing policy on the horizon, there is also no suggestion that the government's approach to the matter will change, and thus prices will continue to rise.
True housing prices fell 2.3% in 2023, after soaring over the previous two years. But the public never really believed that last year's falls could be sustained and anyway did not trust in the government. Intuitively expecting prices to rise again, people took matters into their own hands and bought apartments.
And as if to justify these public perceptions, the government announced at the beginning of this month additional housing lotteries for young couples. The Israel Land Authority (ILA) director general has talked about increases in land marketing, and the planning administration keeps reporting new plans for housing. All those steps are continuing at the moment "on automatic", although it is obvious that they are not amounting to anything.
Haifa leads the price rises
So where exactly has housing become more expensive since the start of the war? In the Haifa district, housing prices have increased by 7% since October, representing a higher average price of about NIS 110,000; Haifa is followed by the Tel Aviv district, which after suffering substantial declines last year, has been revived since the start of the war. The price of an apartment in Tel Aviv has risen 5.3% during the war, up NIS 160,000 on average; The northern district has also recorded a large increase during this period, of 5% or about NIS 70,000 on the average apartment price.
The evacuated and bombed out areas of the north constitute only a small part of this large district, which also includes cities such as Afula, Tiberias, Akko, and Migdal Ha'emek. Despite the situation, the market in this region is very active market in terms of price rises, if less so in terms of the number of deals.
In the central district, there has been an average price increase of 4.3% in apartment prices, which translates to NIS 110,000. In the relatively calm south these days, prices have risen by 3.8%, which is about NIS 55,000, while in Jerusalem prices have only risen by 0.6% since the start of the war, worth NIS 16,000 on the price of the average apartment.
Published by Globes, Israel business news - en.globes.co.il - on June 16, 2024.
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