Israel Faces Housing Shortage as Land Allocations Plummet

Israel's housing market is experiencing a significant downturn in land allocations, a trend experts warn will lead to a severe housing shortage in the coming years. The Israel Land Authority (ILA), responsible for managing most of the country's land and regulating housing supply, has drastically reduced the number of tenders issued for new construction. In the first half of 2026, tenders were published for only 99 housing complexes, a 63% decrease from the same period last year and an 87% drop from four years ago. This translates to a sharp decline in the number of housing units for which land is being allocated, falling from approximately 15,500 units in the first half of 2025 to about 7,700 in the first half of 2026.

Adding to the problem, the success rate of these tenders has plummeted. In the first half of 2026, 44% of the 99 tenders received no bids, a stark contrast to the near 1% failure rate in 2022. This dual failure, with the state issuing fewer tenders and developers hesitant to bid, is exacerbating the supply issue. Furthermore, some tenders announced by the ILA have been criticized for lacking essential details like site size and development costs, rendering them ineffective.

The argument that a large inventory of unsold apartments exists is misleading, according to the report. Out of approximately 86,000 reported unsold units, only about 14,000 are actually completed. The vast majority are still "on paper," in various stages of planning or construction, or have not yet begun. With an average construction time of 38 months per unit, the readily available housing stock is much smaller than perceived.

Developers are delaying projects due to high interest rates and financing costs, with stronger firms acquiring land from weaker ones and holding onto it. The government has even approved a property tax of up to 1.5% on vacant land to encourage development. While construction starts reached a three-decade high in 2025, these were based on land allocated in 2021-2022, a period of peak ILA activity. The current lack of land allocation means the construction pipeline is drying up, with first-quarter 2026 construction starts already down 15%.

Meanwhile, demand, though suppressed by the war, high interest rates, and military call-ups, is re-emerging. Sales have been rising since February, and this pent-up demand is expected to meet a severely restricted new supply. The report concludes that the current period of low land allocation by the ILA is sowing the seeds for a future housing crisis, potentially causing buyers who wait for prices to drop to miss a significant opportunity.