As Israel’s housing prices continue their upward trajectory, the state has introduced various initiatives—such as Mechir LaMishtaken and affordable housing programs—to stabilize the market. However, the definitive solution lies in Urban Revitalization. This high-potential strategy allows for the doubling or even tripling of housing density within city centers, bypasses the need for new land, and addresses the critical shortage of available construction zones. In Jerusalem alone, over 30,000 new housing units are currently being planned under urban revitalization frameworks. These are intended to curb demand for housing in the capital and halt the rise of both property prices and, consequently, rental costs.
Ironically, we are still witnessing a surprising phenomenon in neighborhoods that are experiencing a surge in urban revitalization with rental prices continuing to rise significantly.
Take Ramat Eshkol, a residential neighborhood in Jerusalem where most apartments are occupied by their owners, and there are only a small percentage available for rent. It is one of the neighborhoods with the highest TAMA momentum in the country, and a brief stroll through the vicinity reveals numerous projects under construction.
While new apartments are being added, the execution of these projects requires the evacuation of residents who are entitled to rental assistance by law—such as the elderly and the disabled—as well as others who choose to leave during construction and lease their original units at a discounted rate to renters willing to live on a construction site. This indirectly creates a spike in demand for rentals. Combined with the meager supply in the neighborhood, this has actually driven rental prices up.
Initial Rendering for the Hardoff Compound Project: Evacuation of 179 Units and Construction of Approximately 750 New Apartments.
Another example is Jerusalem’s Kiryat Yovel neighborhood where there are numerous Pinuy-Binuy projects currently under construction, and many more currently in the licensing and permit stages.
In the case of Pinuy-Binuy, the problem may be exacerbated because the developer evacuates 100% of the existing apartments. When a project involving the evacuation of 100 existing apartments moves forward, most of those residents prefer to stay in the vicinity of their original home—leading to 100 additional residents searching for rentals in the same area at the same time.
Government actions are further tightening the market, particularly with the Purchase Tax rising to 8% to push investors out. Since investor-purchased apartments typically increase the rental supply, these restrictions have a side effect: they reduce the number of available homes for rent, directly contributing to the steep rise in rental costsIs There A Solution?
In another project of ours in Armon HaNetziv, which plans for the evacuation of 500 apartments and construction of 2,500 new units, the Municipality has addressed this issue. In this case, it appears that the project will be built in stages to ease the evacuation process and mitigate the resulting pressures.
One thing is certain: Several years down the road, following the first wave of projects, these neighborhoods will boast thousands of new apartments, which should ultimately increase supply and lead to a moderation of rental prices, even as additional projects get underway in the area.