The Knesset Finance Committee last week approved a two-year law that will double the arnona, or property tax, on apartments that sit unused for much of the year.
Aimed at encouraging absentee owners in expensive cities like Jerusalem and Tel Aviv to rent out their apartments to young couples and families, the increased arnona fee will apply to apartments sitting empty for nine consecutive months, and the law will be in effect for two years, enough time for authorities to track the impact on housing prices and supply.
However, some fear the new measure will be too little to fight the scourge of empty apartments plaguing Jerusalem, which has become known for high rental prices as demand outstrips supply.
According to Finance Ministry figures, there are more than 46,000 such apartments in Israel, and the cities most affected are Tel Aviv, with more than 4,700, Haifa, with around 3,445 apartments, and Jerusalem, with an estimated 3,429 empty apartments.
It could be closer to 10,000 empty apartments in Jerusalem, said Ofer Berkovitz, Jerusalem deputy mayor and head of the Hitorerut Party.
“We’ve been studying this situation for four or five years,” said Berkovitz, “even before the social justice protests. Jerusalem doesn’t have enough affordable housing and there aren’t enough options.”
Having created a system that checks the apartments in question, usually by studying water and electricity bills, the party has long understood that “there’s a big problem here,” said Berkovitz. “You don’t have to be a genius to see that in Baka and Rechavia and downtown, there are a lot of apartments that just stand empty, and there are tools, like raising arnona, that we can use to encourage rental to third parties.”
Working with Interior Minister Gideon Sa’ar and Finance Minister Yair Lapid, Hitorerut succeeded in getting the bill pushed through the Knesset Finance Committee, and now they’re waiting to see what happens.
It would be great if the regulation worked, commented Alyssa Friedland, who owns a local branch of the ReMax realty.
“It would avoid the ghost town syndrome that’s prevalent in places like Mamilla, Rehavia and Talbieh, and it would encourage neighborhoods to become more real,” said Friedland. “If owners have to pay double arnona because of the ghost regulations, then owners would reduce rents to be more affordable for tenants and avoid paying high arnona.”
But according to real estate agents and managers who care for those vacation apartments, the rise in arnona won’t make much of a difference to most foreign owners.
“The government’s putting their toes in the water,” said David Chernin, who manages 50 apartments with his Trusted Property Management company. “Of the apartments we manage, I’ve got [only] two that are like that.”
Chernin, like others in his business, manages a mix of apartments throughout Jerusalem. He has investor-owned apartments in the neighborhood of Armon Hanatzviv, aka East Talpiot, that are rented out to young families, as well as mid-range apartments throughout the city as well as luxury apartments. But even the luxury apartments are never completely empty, said Chernin, instead often being occupied by owners’ children, friends and family.
“I’m always dealing with these apartments that are supposedly empty,” he said. “I’ve only got two that really stay empty, and I go there once a week to make sure that all’s fine.”
Berkovitz said he doesn’t blame the foreign owners for their desire to own a place in Israel.
“I have no doubt that their intentions are good,” he said. “But it’s a battle in the real estate marketplace against the young couples and families, and if there were 5,000 to 10,000 more apartments in the market, prices would be that much better.”
Berkovitz also faults the real estate developers, who build “only investor-friendly” apartments.
“If that’s the only thing they build, the city won’t exist any longer,” he said. “Jerusalem can’t be a city of people who live abroad, even if they love Jerusalem. This isn’t about punishing them; it’s about bringing their apartments into the market.”
Chernin estimated that five of his managed apartments could be classified as luxury, with another 12 in the higher-end category and a few that are rented out on the short-term market for vacationers.
“I think that I’ve got a pretty good cross-section of the market,” said Chernin.
Ditto for another apartment manager, who preferred to remain anonymous, but found that when he sent out an email updating his clientele about the new property tax regulation, they didn’t seem to care.
“The feedback I got is that the fee isn’t going to get them to rent out their apartment,” he said.
Berkovitz said his party has spoken to the investors and developers in the past, hoping to convince them to rent out their places. He thinks families could rent to students, who would leave for the high-season periods, such as Sukkot and Passover, when foreign owners tend to visit Israel. He also suggested renting for half-year periods, which could also work for the student population.
“But if they’d rather pay double arnona, then that will help the city offer better services,” he said. “And there are other steps we can take, like changing the purchase tax, because the damage from this situation is considerable.”
So far, however, the apartment managers said their clients were unmoved by the new regulation. Clearly, this is not the Airbnb crowd.
“I do have apartments that are empty nine months of the year,” said one, estimating that about 40% of his clientele fall into that category. “They don’t rent out to anyone.”
He thought they’d want to brainstorm about how to handle the new regulations.
“It remains to be seen; I may get a different reaction when they get the higher arnona bill,” he said. “We’ll see. But even those who want me to shop around for cheaper plumbers, don’t want to rent out their places. It’s still their apartment, their stuff.”