Five Israeli Cities See Sharp Drop in New Construction Starts

Five Israeli cities, including Lod, Beersheba, Ofakim, Ashdod, and Beit Shemesh, are experiencing a significant decline in new housing construction starts. This trend, based on data from the Central Bureau of Statistics, could potentially lead to a decrease in housing prices in these areas.

The relationship between housing prices, supply, and demand is complex. Generally, when demand is high and supply is low, prices rise, and vice versa. A decrease in construction starts, especially in areas with high demand, might suggest future price drops. However, the situation is nuanced; sometimes a slowdown in construction is a strategic move by developers anticipating an oversupply and potential price decreases, leading them to wait for better market conditions, possibly when interest rates fall below 3%.

Ofakim and Beit Shemesh, for instance, have seen drops in construction starts ranging from 44% to 70%. This follows a period of intense building activity in the previous year. In Ofakim, the current pace of construction, while still high, represents a decrease from nearly 3,000 units started in the prior period. If this trend continues, the substantial supply, particularly in new neighborhoods like Afikay HaNachal, could cause prices to fall.

Lod also shows a similar pattern, with a significant decrease in construction starts after a period of building thousands of units. While prices in Lod are expected to remain stable or not rise significantly due to the high number of units built annually (around 2,000), they are still considerably lower than in neighboring areas like Ramla.

Beit Shemesh presents a unique case. Despite a reported decrease in construction starts, the city continues to see high demand, particularly from the Haredi community. This sustained demand, coupled with a significant price increase since 2021, suggests that prices are unlikely to drop substantially, even with fluctuations in building permits.