Large apartments in Israel's outlying regions and in ultra-Orthodox cities, and small apartments in central Israel stand out as having risen most in price over the past two years. New apartments have led the price rises in the overall market and Tel Aviv has consolidated its position as Israel's real estate capital, even though the number of homes being sold there is falling. All this can be gleaned from the figures released this week by the Central Bureau of Statistics, for home sales in the second quarter of 2022. There is less available data about rentals but it is becoming clear that rents are on the rise.
Buyers have shifted to second hand apartments
The latest round of rises in housing prices began two years ago at the end of the first Covid wave. Over those two years, the new homes price index has risen 30% and the overall homes price index has risen 26%. In other words, the prices of new homes have risen at a slightly faster rate than second hand homes, although over the past year both new and second hand homes have risen at the identical rate of 18%, which suggests buyers have shifted slightly from preferring new to second hand homes.
The most popular homes to buy
The Central Bureau of Statistics data includes average prices for homes purchased in the second quarter according to size and city, and from this several trends can be seen over the past two years.
The average price of a home bought in the second quarter of 2022 was NIS 1.88 million, up NIS 340,000 from the average price of a home bought in the first quarter of 2020, and up almost NIS 200,00 from the average price of a home bought in the second quarter of 2021.
In terms of the size of an apartment, the locations where prices have risen most over the past two years are the ultra-Orthodox cities of Bnei Brak and Beit Shemesh and the cities on the periphery of Gush Dan including Beersheva, Netanya, Rehovot, Kfar Saba and Ashdod. In the cities closest to Tel Aviv - Rishon Lezion, Ramat Gan, Bat Yam, and Tel Aviv itself, the prices of smaller apartments are those that have risen most. In the remaining locations including Haifa, Jerusalem and Ashkelon, the prices of medium-sized apartments (3-4 rooms) have risen most.
The apartments where prices have risen most of all in Israel are: six room apartments in Beit Shemesh, which have risen by 66% to NIS 3 million; 1-2 room apartments in Ramat Gan, which have risen by 45% to NIS 1.76 million; 1-3 room apartments in Tel Aviv, which have risen by 43% to NIS 3.07 million and NIS 3.47 million respectively; and five-room apartments in Kfar Saba, which have risen by 44% over the past two years to NIS 3.8 million.
The reasons for the different behavior in prices depends on the specific location. Ultra-Orthodox families with large families are interested in bigger apartments, while in Tel Aviv and environs, it is difficult to afford larger apartments so there is larger demand for small housing, including to a significant degree from investors. Tel Aviv, Ramat Gan, Bat Yam, and Rishon Lezion are among the cities preferred by investors.
Haifa and Beersheva demonstrate more modest price rises
Another check that we conducted concerns four-room apartments - the most popular size for buyers. Tel Aviv leads in price gaps for these apartments, which cost an average of NIS 4.7 million, up 28% over the past two years, and by 14% over the past year. Most of the big cities around Tel Aviv as well as Jerusalem also saw handsome price rises. In contrast, Haifa and Beersheva returned the most modest price rises. The average four-room apartment in Haifa costs NIS 1.56 million and in Beersheva NIS 1.17 million, much lower than in central Israel. This has not resulted in increased demand in Haifa and Beersheva, or at least as expressed by price rises.
Another issue is housing supply, or as the theory goes, a shortage of housing is causing the price rises. Yet Tel Aviv, which leads in terms of the construction of new homes in Israel, has seen prices rise faster over the years than most other large cities.
Attempts to reduce demand through lotteries for cut-price homes and pricing-out investors through higher taxes have also completely failed to dampen the market. When Moshe Kahlon was Minister of Finance, a myth was created that these measures would lower housing prices. It's true there was a temporary falls but they were no more than a passing tranquilizer, which wouldn't work today.
The reason there is no data on rental rises
Government policy has also persistently indirectly harmed the rental market. The stare puts renters low down on its list of priorities when it comes to housing policy. Firstly it builds very few homes for long-term rentals while discouraging investors who want to buy homes and rent them out. The result is that the supply of housing for rent is dwindling.
In recent months there have been many complaints on social media that tenant have had their rent hiked by especially high prices by landlords. Yet this problem is not reflected in the data of the Central Bureau of Statistics.
According to the Central Bureau of Statistics, excluding public housing, rents rose by 0.7% in July. This is not an especially high amount but it only refers to the 86% of tenant with existing contracts. For the 10% who renewed their contracts the rent rose by 3.5% and those who moved saw their rent rise by 7%.
Published by Globes, Israel business news - en.globes.co.il - on August 18, 2022.
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