Real Estate Developers Warn of Rental Housing Crisis Amid Rising Costs
Israeli real estate developers are sounding the alarm over a potential crisis in long-term rental housing, citing high construction costs, prolonged bureaucratic processes, and unfavorable market conditions. The government aims to allocate up to 30% of new apartments in high-demand areas for long-term rentals, mirroring a US model. However, developers report a significant drop in successful tender bids, with only 12% succeeding, and a three-year wait for building permits.
Developers argue that the era of near-zero interest rates, which previously made such projects viable, is over. Current market conditions, driven by profitability, necessitate a re-evaluation of all projects based on construction, financing, and expected revenue. Even with institutional investors involved, lengthy bureaucratic procedures, such as a ten-month wait to implement an agreement, hinder progress, indicating a disconnect between government policy and market realities.
Challenges include a nearly 30% increase in construction costs over the past five years, with some projects facing delays due to unfinished infrastructure like electricity. The permitting process, taking three years, is cited as exceptionally long compared to global standards. These delays, coupled with rising costs, mean that the "million shekel" difference in construction expenses must be absorbed, ultimately impacting renters.
Developers propose solutions such as reducing purchase taxes for developers, government guarantees for cheaper financing for institutional investors, and increased building rights. They also suggest linking rental housing policies to benefits for reservists. A core issue remains the economic viability of projects, with development costs alone approaching NIS 300,000 per unit, making some tenders unfeasible without a profitable model.
The consensus is that demand for long-term rentals will grow, and the state intends to expand this sector. However, a significant gap exists between planning and execution. Unless interest rates, land prices, taxation, and bureaucracy allow for reasonable returns, even ambitious rental housing quotas may remain on paper.
