Israeli Housing Construction Costs Keep Rising, Pressuring Builders and Buyers

Israel’s residential construction input price index rose another 0.6% in May 2026, according to the Central Bureau of Statistics, bringing its annual increase to 3.5%, nearly twice the pace of inflation. Over the past five years, the index has climbed by more than 20%, and it has risen continuously since the start of 2025 by 2.2% overall.

The index matters because it is linked to many construction contracts, including private-sector agreements and some contracts between builders, developers and homebuyers. On a house with a million-shekel construction cost, the index-linked increase has added about 200,000 shekels since 2021, including 35,000 shekels in the last year alone. If the current pace continues, the index will post its strongest annual rise since 2021, when it jumped 5.6%.

The article says the surge is tied directly to the war that began with Hamas’s October 7, 2023 attack. The first factor was the halt in the entry of tens of thousands of Palestinian workers, which created a labor shortage and pushed wages sharply higher until foreign workers partially filled the gap at much higher cost. The second was Turkey’s late-2024 trade boycott on Israel, which drove up the price of construction goods.

Even though the dollar has fallen from above 4 shekels at the start of the war to about 2.91 shekels today, construction costs keep rising because labor is the dominant component, making up nearly 43% of the index. Labor costs rose 9.1% in 2025, 4.8% in 2024, and another 3% so far this year, while material and product prices also increased. The report notes that developers now often absorb the index rise themselves because 21% of free-market contractor sales in April 2026 included financing benefits that waived index linkage.