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To tackle rocketing housing prices, Israel suggests a stranglehold on Airbnb rentals

With hotels clamoring for crackdown and many priced out of rentals near Tel Aviv, government may seek to free up some 13,000 homes being used as vacation rentals today

A view of a junction on Allenby Street in Tel Aviv. (rglinsky via iStock by Getty Images)
A view of a junction on Allenby Street in Tel Aviv. (rglinsky via iStock by Getty Images)

An empty property is a lost opportunity for a home, even just for a day. Or at least that’s how Israel’s government sees it.

In November 2021, when the government unveiled its housing plan, one key element was a proposed clamp-down on short-term rentals — units offered by the day, week or month, primarily to vacationing tourists through platforms like Airbnb.

In the past year, short-term rentals have been accused of harming hotels attempting to recover from the COVID-19 travel shutdown and of crowding the property market, making realistically affordable real estate in high-demand areas like Tel Aviv even harder to come by, especially for long-term renters.

At the heart of the issue are runaway housing prices which have flummoxed successive governments for over a decade, with each offering various schemes to alleviate the crunch. Most plans, like the newest one mooted by the government, have sought to bring prices down by flooding the market with apartments, either by fast-tracking new projects or disincentivizing the purchase of second homes for investment. The current proposal also includes the possibility of some kind of permit scheme for short-term rentals, with an implication that they may be denied in areas of high rental demand, affecting as many as 13,000 properties according to the Finance Ministry, and effectively closing them down.

It’s hard to know how many short-term rentals actually exist in Israel. The market is usually thought of as primarily consisting of homeowners who use Airbnb or similar platforms to rent out their property, or part of it, for a few days or sometimes longer, usually to tourists. Stays are often cheaper than hotels, offer different amenities or types of spaces, and appeal to everyone from large families on vacation and backpackers looking for a place to crash to domestic tourists and even business travelers.

Airbnb has over 10,000 “hosts” offering use of their homes across Israel, a spokesman for the platform told the Times of Israel. He said that the majority of those in Israel list only one property, which they live in and move out of in order to rent their home for a couple of days here and there.

The sun rises over Tel Aviv, October 2019. (ZZ3701 via iStock by Getty Images)

Booking.com (which includes some hotel rooms) offers more than 2,800 properties in Israel. And though zimmers — rustic cabins, romantic suites and the like — are usually not designed to be used as homes and are usually located away from large cities, some of the 1,500 properties listed on Zimmer.co.il are actually converted homes or apartments, including in cities like Tel Aviv and Jerusalem.

Real availability is likely lower than these figures suggest as owners normally list properties on multiple platforms, including local sites like Isralet.

By comparison, Israel currently has 56,914 hotel rooms, with plans for several large new hotel developments slated to open in the next five years. Approximately 10,000 existing rooms are in the Tel Aviv area, with a further 5,000 rooms in the pipeline.

Research has suggested that, in general, the markets for hotel stays and for short-term rentals are different, with short-term rentals originally offering more self-service style accommodation in out-of-the-way places. This has shifted a bit because of the COVID-19 pandemic and since Airbnb started including boutique hotels in late 2019. The platform and its competitors still offer something very different from the hotel market.

The new David Kempinski Hotel in Tel Aviv, overlooking the Mediterranean Sea and open for business in April 2022. (Courtesy: Kempinski)

This is part of the reason the Israel Hotel Association has been calling for greater regulation and higher taxes on homes being used as vacation rentals. The association argues that there is not a fair playing field since most short-term rental operators do not pay commercial occupancy taxes, allowing them to charge lower prices.

In 2019, Tel Aviv promised to look into restricting the vacation properties, citing the skyrocketing numbers of apartments being offered to tourists on Airbnb and the like, even as renters seeking to live in the city were increasingly priced out. However, before the city could take action, the pandemic hit and the plan appears to have been shelved for an indefinite period.

Today, there are an estimated 9,000 properties being used for short-term rentals in the Tel Aviv area, where some 4 million people live. The year 2021 saw more than 5,000 construction starts on new homes in the crowded city. But rents are up 10% in the first two months of 2022 and continuing to rise, making the world’s most expensive city that much more expensive.

Nahum HaNavi Street in Tel Aviv, by Sderot Nordau. (Ricky Ben-David/Times of Israel)

Yet even with the average rent for a three-bedroom apartment in Tel Aviv climbing above NIS 10,000 ($3,000) a month, owners can still make substantially more by using their property as a vacation rental.

Research by the website Compare the Market looking at the average monthly cost to rent an Airbnb property in 90 global tourist hotspots showed Tel Aviv had the fifth-highest average monthly rate in the world, while Jerusalem was tenth. By participating in the short-term rental market, a host can earn 243% more per month than a private (long-term) landlord in Jerusalem and 192% more than a private landlord in Tel Aviv. The commission they need to pay to Airbnb at 3% does not substantially dent their profits.

Tel Aviv is not alone in the list of cities wanting to limit short-term rentals. In Paris, there have been fines imposed and requirements for registration in an attempt to control the reach of Airbnb. In Barcelona, the city requires Airbnb operators to have a license. And in Berlin, second homes can only be rented out for 90 days a year.

In Santa Monica, California, which has imposed the toughest controls, rentals for any period shorter than 30 days are banned, unless the owner also stays on the property, in which case a business license is needed and operators must collect a 14% occupancy tax from renters.

Israel’s Tourism Ministry sees short-term rentals as integral to Israel’s tourist offering. In a statement to the Times of Israel, a spokesperson said: “Short-term vacation rental rooms in apartments and houses contribute to increasing the supply of accommodation options in Israel, where there is insufficient accommodation supply to meet demand. In addition, short-term rental apartments provide a wide variety of options throughout Israel for different types of accommodation.

“Accommodation in apartments and homes answers a global trend in tourism and a desire to stay within the community, which brings together tourists and locals and serves to enrich the tourist experience.”

The latest new housing plan in Israel is scheduled for publication this month. It may move forward with a strict licensing regime, financial disincentives, or an outright ban on short-term rentals in parts of the country.

Or lawmakers may quietly let the issue drop in favor of other potentially more effective measures.

At the moment in Israel, there is no licensing or registration required to run a short-term rental. Owners are supposed to register the home as a business and pay income taxes, and, in some cases, a sales tax is also levied.

Airbnb CEO Brian Chesky speaks during an event in San Francisco, February 22, 2018. (AP/Eric Risberg)

But Boruch Levenson, a senior accountant with Dray and Dray, suggested that the tax authority has not been “super aggressive in chasing down rental income.”

“There are other ways to discourage people from short-term lettings using other financial tools,” he told The Times of Israel, suggesting that such properties be subject to higher local property tax rates.

In 2016, the Tax Authority reported that over 30 percent of owners renting properties short-term were dodging paying taxes by not reporting the income. The percentage of tax evaders in Tel Aviv (48%) and Jerusalem (44%) was even higher.

An apartment that was available for quarantine rental in Tel Aviv during the COVID-19 pandemic. (Courtesy: Eyal Leventhal Ben David)

As it has sought to free up homes in the center of the country, the government has also encouraged homeowners in outlying areas of the country to build separate units onto their properties.

The small apartments are often ideal for young families starting out, supporting population growth in towns and villages far from Tel Aviv or Jerusalem. The units also make ideal short-term vacation rentals. Some can be found on Airbnb right now.

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