“I expect rents in the periphery to fall and rents in the center to rise sharply,” Housing Minister Zeev Elkin estimated this week. Immediately after, the chief economist at the Ministry of Finance, Shira Greenberg, published data that strengthens the assessment as part of a survey of the residential real estate industry.
One of the main allegations raised in recent times, mainly by government officials, is that investors are attacking the apartments. The facts do show that following the reduction of the purchase tax in July 2020 by former Finance Minister Israel Katz, investors increased the volume of their purchases by tens of percent compared to the period before the tax reduction. In practice, this is half true.
The other half is that investors are not only buying apartments at an accelerated rate – on the other hand they are also selling apartments at similar rates. For example, alongside 2,600 apartments purchased by investors in July, they also sold 2,600 apartments, and the inventory of apartments for rent has not changed.
In fact, over the past few months, where investors have been buying relatively large-scale apartments, they have sold similar-sized apartments – so the rental housing stock has risen by a few hundred since November 2020, while relative to April 2016 it is 26,000 apartments lower. Is this creating a shortage of apartments for rent? The data in this regard teach that reality differs from place to place.
Tel Aviv is popular with investors
The chief economist examined the cities in which investors made the largest deals in July and the prices of apartments they purchased. Tel Aviv has starred in its popularity with investors, with about 250 apartments they have purchased. Next in the ranking is Haifa with about 180 apartments, Jerusalem with about 170, and Bat Yam and Netanya, in each of which about 140 apartments were purchased in July.
However, the average price of an apartment that a buyer invests in Tel Aviv reached NIS 5.1 million; Elsewhere in the center of the country, high prices can be seen as well: in Netanya the price of an apartment purchased by an investor reached NIS 3 million, in Herzliya and Kiryat Ono NIS 2.9 million, in Jerusalem and Givatayim NIS 2.8 million, and in Raanana and Ramat Gan NIS 2.7 million. These are prices that embody high rents, which a large proportion of young middle-class couples cannot afford.
In light of this, it is likely that a situation will arise in which the supply of apartments in these cities may increase, but in fact a large part of it will be irrelevant to many due to the high rental prices. The result: more tenants will have to contend with a limited inventory of apartments for rent at reasonable prices. In such a situation a forecast for a rise in rental prices seems reasonable.
What is the government doing about it?
On the other side of the barricade are the peripheral cities, where the prices of apartments purchased by investors are much cheaper: in Haifa and Ashkelon, the average apartment price purchased by an investor in July reached NIS 1.2 million, in plowing NIS 1.1 million, in Be’er Sheva and Afula NIS 1 million. Some of these places, and especially those where many projects are being set up as part of the “price per occupant” framework, have already starred in the chief economist as places flooded by investors, who have also suffered losses. Continued purchase of apartments by investors in these places, predicts that just as Minister Elkin predicted – rental prices in them fell.
Beyond the warnings of Minister Elkin – the question is what the government and he himself are doing about it. When a government minister warns of price increases, he should expect a market attack. It is true that the market is already on big fire, but such things may spill extra oil into the real estate fire.
Second, the government’s treatment of investors reinforces exactly what the Minister of Housing warns: Once the government discusses the possibility of imposing high taxes on investors in areas of demand and low taxes in peripheral areas, it wants to send investors to plowing, Afula, Acre and Dimona, some of which are already flooded. Such measures will only strengthen the opposing trends that exist in the rental markets in the center and the periphery.
The plan to convert offices into residences has been approved
During this period, the government is building on a number of steps to increase the supply of rental apartments, centered on encouraging long-term institutional renting – a program promoted by the Finance Committee, which mainly changes the law to encourage capital investment, and changes in legislation of REIT funds.
But the proposal has met with opposition from entrepreneurs who believe it is not attractive enough. The Knesset Research Center also issued a relatively lukewarm report on the degree of viability that the proposed change in legislation produces.
Another policy approved this week by the Knesset’s Interior Committee, headed by Walid Taha, is the proposal included in the Arrangements Law, to allow the conversion of employment areas (offices and factories) in favor of residential construction. The final wording approved by the committee differs significantly from previous versions, due to great pressure exerted by the local government center and the 15th Forum, which warned against harming the power of local authorities.
The proposal of the Ministries of the Interior and Finance is based on the idea that there is a large supply of office space, especially in the Tel Aviv area, for decades to come. There is also a recognition that the corona virus has caused many workers to move from work to home and therefore there is a further reduction in the demand for employment space. All of these face the great shortage of living space.
The operative step currently proposed by the government is the establishment of a subcommittee of the National Planning and Building Council whose role will be to approve detailed plans that convert employment areas (30% per plot) in favor of residential areas. It should be clarified that this is a construction of “small” apartments, measuring 50 square meters.
Interior Minister Ayelet Shaked responded that “we are in the midst of the acute housing crisis known to the State of Israel. Following a state budget that did not pass for two years – no housing units were marketed, and now we are in the race to dress the country in concrete and cement.” A tremendous amount that will provide thousands of housing units in areas of demand in the foreseeable future. “
Despite the enthusiastic statements, these two solutions will not be reflected in the coming years and even then they will serve as limited solutions in light of the small supply of apartments.