The number of housing building starts in Israel in the second quarter of 2023 was the lowest since the Covid lockdown in 2020, Central Bureau of Statistics reports. However, in the second quarter of 2023 there was a rise of about 20% in building permits, similar to 2022. The cities leading the list for building starts in the 12 months between July 2022 and June 2023 were Tel Aviv, Jerusalem and Bat Yam.
Building starts is one of the most important indicators in the construction industry, as they comprise the stock of apartments for sale, which constitutes the bulk of the supply of apartments. The target set by governments over the past 15 years has been to increase the supply of apartments, through encouraging and increasing the number of building starts.
Indeed, in recent years there has been an increase in the number of construction starts. In 2019-2020 a quarterly average of 14,100 building starts was recorded. In 2021, the quarterly figure jumped to 16, 000 building starts on average and in 2022 it reached its highest level for several decades, when on average there were 16,900 building starts each quarter.
The rise in interest rates dampened demand
However, this year the situation changed, and the number of building starts in the first half of the year returned to its levels from 2019 and 2020, about 14,000 average building starts per quarter. The second quarter, in which there were 13,290 building starts, was one of the weakest since 2018.
This is an expected but disappointing figure. Until recently, the annual number of building starts exceeded 70,000 housing units. The government is also not trying to deal with the situation, to stop the declines.
These decreases are due to the increase in interest rates, which not only affected the financing expenses of developers, but mainly caused a decrease in demand for the apartments they offer for sale. This caused the rate of purchasing new apartments to drop by 40%, and has caused an increase in the inventory of unsold new apartments held by developers who are trying to reduce this inventory, by cutting the rate of construction.
Building permits are a positive surprise
A figure that has been a positive surprise is the number of building permits issued in the second quarter, which, after a low recorded in the first quarter of the year, returned to their level from last year of about 18,000. This figure indicates that developers are still striving to start new projects, perhaps in government subsidized programs or as part of urban renewal projects, where developers are obligated to tenants to start construction as soon as possible. The number of building permits suggests that the rate of decline in building starts will be relatively moderate.
In building starts, Tel Aviv led in the 12 months between July 2022 and June 2023, with 4,939 starts, down 6% from the preceding 12 months, followed by Jerusalem (2,929 apartments) and Bat Yam (2,702 apartments).
Published by Globes, Israel business news - en.globes.co.il - on September 20, 2023.
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