Urban Renewal Lagging in Israel's Periphery, Concentrated in Central Cities

Analysis of Israel's Central Bureau of Statistics data for the first half of 2026 reveals a significant disparity in urban renewal construction starts. While cities like Tel Aviv and Yavne are seeing a substantial portion of their new housing built through urban renewal projects, including "pinui-binui" (demolish and rebuild), cities in the periphery such as Elad, Ofakim, Netivot, and Tiberias have zero such projects underway. Other peripheral cities like Beit Shemesh, Kiryat Malachi, Eilat, and Shoham also reported no urban renewal starts.

Nationwide, approximately 8,500 urban renewal housing starts were recorded in the first half of the year. However, about 77% of these, or 6,550 units, are concentrated in just ten cities. Tel Aviv leads with 1,987 units, followed by Petah Tikva with 956 (78.4% of its total construction) and Bat Yam with 813. Jerusalem ranks fourth with 644 units, representing less than 20% of its overall construction.

The economic model of urban renewal, where developers offer new apartments to existing residents in exchange for the right to build and sell additional units, explains this geographical divide. In expensive central cities like Tel Aviv, the higher market value of new apartments allows projects to be financially viable with fewer new units built. In contrast, peripheral areas require a much higher density of new construction to cover costs, a density that local demand and infrastructure often cannot support.

While government initiatives and subsidies aim to bridge this gap, their impact is limited. The article notes that even in central areas, the profitability of urban renewal projects is diminishing due to rising financing costs, increased construction expenses since the war, labor shortages, and a slower pace of apartment sales. Local authorities also contribute to the burden through significant levies on these projects.

The slowdown is reflected in building permit issuance, with a projected 15% decrease in urban renewal permits for 2025 compared to 2024. Despite a large number of approved plans, the number of permits, a crucial step before construction, indicates a future reduction in building sites. While actual construction starts remain relatively stable for now, the long-term outlook suggests that many projects signed during boom years may not reach completion, particularly in less profitable areas.