Government plans building boom to alleviate Israel’s housing crisis

Program aims to start construction of 280,000 homes and approve 500,000 more in 2022-2025; will cost more than $5 billion

Illustration of construction in Tel Aviv. November 6, 2019, (Miriam Alster/FLASH90)
Illustration of construction in Tel Aviv. November 6, 2019, (Miriam Alster/FLASH90)

The government on Sunday announced its ambitious housing plan for 2022-2025, aimed at rapidly increasing the supply of apartments in the hopes of reducing prices and combating Israel’s spiraling housing crisis.

The plan — put together by the Finance Ministry, Housing and Construction Ministry, and Interior Ministry — consists of setting a number of planning and development goals for the government, based on funding included in the national budget set to be approved by a November 14 deadline.

A joint statement from the involved government ministries said the planned moves would shorten the bureaucratic process and overhaul Israel’s real estate landscape,  “already lowering prices in the immediate time-frame.”

The plan set a target of starting construction of 280,000 homes over the next four years — significantly more than in recent years — advancing plans for 500,000 more housing units, publishing tenders for 300,000 homes on state-owned land, and having 180,000 successful such tenders.

Reforms to reach those goals include reducing bureaucracy in general, particularly for unique housing projects — such as ones that aim to demolish old buildings to rebuild new ones in their place — and projects that convert offices to residences.

Other measures listed in the plan are increasing the residence purchase tax for investors to 8%, and lowering taxes for those who build on private land.

Illustrative: Construction site for a new skyscraper in Jerusalem on April 26, 2021. (Nati Shohat/Flash90)

Additionally, the government ministries said they would recommend banning the use of private homes for businesses in central Israel, aside from kindergartens. They also recommended banning the use of private homes as hotels, such as with the Airbnb vacation rental site.

The plan aims to invest NIS 8 billion ($2.5 billion) in developing transportation, drainage, and sewage infrastructure; NIS 5.5 ($1.75 billion) in creating new kindergartens and schools; more than NIS 2 billion ($630 million) in developing, planning and removing hurdles for new homes in the Arab community; and NIS 640 million ($202.6 million) to encourage municipalities to approve construction permits.

The cost of buying a home has been skyrocketing in Israel in recent years.

Related: Israeli housing prices have nearly doubled in a decade, with no signs of slowing.

During mass protests in July 2011 over the rising housing expenses, the average price for a four-room (three-bedroom) family apartment in Israel stood at approximately NIS 1,450,000 ($450,000 per the current dollar-shekel rates, and about $402,777 in late 2011 when the average rate was 3.6) — and was considered high at the time.

Israelis protest on Rothschild Boulevard in Tel Aviv against soaring housing prices on October 2, 2021. (Avshalom Sassoni/Flash90)

By June 2021, the average cost of a four-room apartment in Israel was roughly NIS 2,200,000 ($682,608), according to quarterly and annual research by the Alrov Institute for Real Estate Research at Tel Aviv University’s Coller School of Management.

A 2016 study found that 30% of annual home purchases were made for investment. Whereas in 2008 only 2% of Israelis owned two or more homes, now that figure is 10.5%, and among those in the top income decile, it’s some 35%.

People looking to buy an apartment nowadays must come up with roughly NIS 840,000 ($261,140) in personal equity, according to a separate study for the second quarter of 2021, up from NIS 760,000 ($236,269) in this year’s first quarter. This sum includes a down payment of at least 25% according to Bank of Israel rules, closing expenses, taxes, lawyer fees, and other surrounding costs.

Ricky Ben-David contributed to this report.

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