Israel's Rental Market Faces Shortage Amid Rising Rents

Israel's long-term rental housing market remains underdeveloped, with only a small fraction of new constructions dedicated to rentals compared to units for sale. While 30% of Israeli housing is rented, the majority of new developments focus on sales, leading to a scarcity of rental properties. Consequently, rental prices have been increasing, with new tenants typically paying 5% more than previous ones, and an additional 2-3% upon signing a new contract. These increases are often tied to the consumer price index, making the actual rise higher.

The government's long-term rental program offers units at 80% of market price to eligible individuals, with the remainder rented at market rates. Tenants can stay for a maximum of ten years, with the option to renew annually thereafter. In some complexes, up to 50% of units are offered at a discount. Developers can sell these units on the open market after 20 years, or sometimes after 10 years, depending on the tender terms.

Last year, only 4,068 units were allocated through lotteries under this program, despite the state marketing 4,586. Some units remained vacant due to insufficient demand in areas like Yavne, Ma'ale Adumim, and Kiryat Gat, while Tel Aviv and Rishon LeZion saw full occupancy, indicating a strong demand for rentals in central Israel.

Developers are investing heavily in new rental projects, particularly in Tel Aviv's Sde Dov area, where companies like Parskovsky, Reisdor, Union Lib, and Africa Israel are building thousands of units. These companies paid approximately one billion shekels for the land alone and anticipate benefiting from index-linked rent increases and property value appreciation before eventual sale. However, the overall annual construction of rental units, around 4,000, is considered insufficient to meet demand, and it remains unclear how authorities plan to address this persistent shortage as rental prices continue to climb.