In each of the last four years, construction has started on 2000-2,500 new housing units. Most of the apartments are prestige homes, located in the north of the city, priced at about $100,000 per room. They are almost all large apartments, 95 sq. m. or more in area. Summing up the figures for 1997, one can estimate that there are about 1,100 apartments unsold.
The rate at which the Tel Aviv Municipality issues building licences is not expected to change in the next few years. The Municipality’s declared and unwavering planning concept includes increasing the supply of homes in the city as a means of moderating prices; narrowing the gap between north and south, by raising the quality of residential properties in the south and developing the infrastructure there; preservation of the cities historic social fabric, to make the city more attractive to a strongly rooted population; and improved access. What might change is the rate of contractors’ applications for new building permits.
It is not clear whether the general public can swallow the quantity of new prestige construction. What is clear is that, at this stage, there is a surplus supply of housing units. This surplus, it turns out, did not begin last year.
According to figures supplied by the Tel Aviv district planning team, from the beginning of the 1980s until 1995, 65,000 housing units were built in the entire Tel Aviv district. On the face of it, this implies a surplus of 10,000 housing units, in comparison with the population growth in the district.
In Tel Aviv itself, at the end of 1995, there were 154,500 housing units, and the population was 356,200. The average number of people per apartment in Tel Aviv is 2.8. Average living area per person is 28 sq. m. The implication of the figures is that in Tel Aviv, at the end of 1995, there was s surplus of 463,000 sq. m. If the surplus area is divided by highest coefficient, 100 sq. m. apartments, this gives a surplus of 4,635 apartments.
This number of housing units needs to be adjusted for cases in which the area of living space per person is higher; investments in homes by overseas investors; and the cases in which apartments are used as offices, where the area per person has no meaning. Even when all these factors are allowed for, we can still take it that by the end of 1995, there was a hidden surplus of housing units in Tel Aviv. This perhaps explains Tel Aviv contractors’ declarations about excess building permits in the city as early as 1995.
The planned housing stock for Tel Aviv includes 150 constructions plans. These include about 60,000 housing units, of which 30,000 are approved. The approved plans are mainly in the north of the city.
Analysis of the plans gives the following picture: plans for 20,000 housing units in the north of the city; 18,000 housing units in existing residential areas (such as the building plans for the Bezalel Market, for example, where building plots have recently been sold); about 4,000 housing units form part of plans for combined residential and office buildings (such as the Shalom Centre and the Levinstein towers).
Tel Aviv apartment prices behaved variably in 1997. In north Tel Aviv, prices rose about 3%. In the centre and south of the city, prices were stable.
The reason prices rose in the north of the city seems to have been that new projects in the north came to fruition only this year. Supply in this part of the city was low in previous years. Many purchasers delayed their buying plans until apartments in this area were ready to be sold.
This together with the country-wide fall in home prices, and the expectation that the vacating of offices will bring down home prices in the centre of the city, is likely to bring about substantial price falls in new projects too. This means in projects in the north of the city, as well as exclusive projects in the city centre - the new construction project in Bezalel Market, for example; the construction expected on the Rokah and Kiryat Sefer sites.
In the north of the city, a tender for hundreds of housing units at Tel Baruch closed a few days ago. A year ago, building plots were sold there at prices upwards of $150,000 per apartment for the land.. The results of the tender indicate, in some cases, prices lower by $50,000. In one case, a tender closed at a price of $70,000. The tender results show the contractors’ insight into the future fall in prices even in north Tel Aviv.
In any case, prestige homes in Tel Aviv will face competition from new construction throughout the Tel Aviv district. One source of competition could come from Givatayim. In Givatayim, which, from the point of view of infrastructure is considered a neighbourhood of Tel Aviv, there is the potential to build 1,500 housing units. The potential is in the best areas of the city (the Ben Zvi site and the City area) where prices are identical to those in Tel Aviv.
No real competition is expected from Ramat Gan, where, in the best areas, prices are the same as in Tel Aviv, but the segmentation of purchasers is different. Competition could come from the 6,000 homes expected to be built in Holon.
For the price of a small apartment in Tel Aviv, a young couple can buy a new, spacious apartment in Holon. A trend of this kind of preference could come a the expense of prestigious apartments in Tel Aviv. If the scenario comes about, there will not be many buyers for mid-range apartments in Tel Aviv. This will mean the owners of such apartments will not be exchanging them for new ones.
Published by Israel's Business Arena January 11, 1998