Can anything stop Haifa's decline?

Haifa  credit: PR

Home prices rose last year in all of Israel's 16 largest cities, except one.

These are figures the Haifa Municipality's senior echelons probably didn't like. Last month, the Central Bureau of Statistics (CBS) issued summary real estate data for 2020 of the 16 largest cities in Israel. The numbers indicated a rise in home prices for 15 cities. Only in Haifa did prices fall, by an average of 4% over the past year.

This comes as no surprise to anyone familiar with the Haifa real estate market. Long before 2020, Israel's third largest city had a hard time making itself attractive. In fact, long-term trends such as an ongoing erosion of employment opportunities, and the growing attractiveness of some of its neighbors, have - for at least four decades - made things difficult for Haifa. "Globes" set out to examine what underlies the ongoing crisis at the Carmel region's capital.

1. The growing gap between Tel Aviv and Haifa

Note the following figure. The average apartment sale price in Haifa for the last quarter of 2020 was NIS 1.2 million, while Tel Aviv, the price was NIS 3.03 million. In other words, the average price of an apartment in Haifa is about 40% of one in Tel Aviv.

It wasn't always this way. In the early 1980s, average apartment prices in Haifa were about 80% of the average apartment price in Tel Aviv. There are reasons to compare the two cities: both are metropolitan centers, and because Tel Aviv is Israel's most in-demand city, prices close to those of Tel Aviv indicate higher demand and vice versa.

So, how did the price gap widen this much? During the real estate crises of the 1980s and the first decade of the 21st century, Haifa apartment prices fell rapidly, while demand in Tel Aviv remained fairly stable. Tel Aviv's resilience in the face of downturns in the real estate market demonstrates the city's strength, and, equally, exposes Haifa's weakness. In the heyday of the 1990s and in the previous decade, Haifa at best managed to stabilize the price ratio with Tel Aviv. To put the city's real estate decline in broader perspective, according to recent Central Bureau of Statistics data, out of the 16 major cities, the average Haifa transaction price for the last quarter of 2020 was lower than all other cities, aside from Beer Sheva.

2. New mayor elected, construction stops

Between 2014 and 2018, Haifa was among the top ten cities in Israel for building starts, with more than a thousand apartments beginning construction in each of these years. Most construction during this period was in the new Neot Peres neighborhood, to the city's southwest. There was also accelerated construction of apartments under the TAMA 38 - National Outline Plan for seismic strengthening of buildings, in the Carmel area.

At the end of 2018, a political earthquake shook Haifa when Einat Kalisch-Rotem was elected mayor, replacing Yona Yahav after a 15-year term in office. Over the past two years, another type of earthquake has also been happening: a drastic decline in new construction between 2019 and 2020. In 2019, only 512 building starts were recorded, while in the first three quarters of last year, there were only 186. By contrast, 2,333 building starts were recorded in Tel Aviv. Not only is Haifa not at the top of Israel's building starts list, it is not even top of the regional table. During the first three quarters of 2020, 331 building starts were recorded in Tirat Carmel, and 481in Kiryat Yam.

When it comes to construction permits, the situation is even worse. In the first three quarters of 2020, only 53 permits were issued in Haifa. Due to Covid-19, there was a country-wide decrease in permits issued last year, but this number is still more suited to a small local council such as Meitar in the south (where for example 46 building permits were issued in the period in question). In Ramat Gan, 2,146 building permits were issued during this period, and in Netanya - 1,339. In front-runner Tel Aviv, building permits for 2,844 apartments were issued during this period.

"There are developers and contractors in Haifa who want to build, but the municipal administration headed by the current mayor is blocking any new development that isn't initiated by them. Anything done during the Yona Yahav administration is either thrown out, not promoted, or stalemated. The mayor decided to shut down and reboot the city. Haifa is no longer a city. It is the third largest city in the country, and it issues building permits like a village or a small local town council," says Chairman of the Association of Contractors and Builders in Israel - Haifa Division, Haim Feiglin, CEO of construction company Zemach Hammerman

3. 2025 forecast could happen in 2050

Demographic growth is one of the main elements in calculating the pace of construction in a particular place. Ultimately, this factor is most important in determining demand for apartments in a given place. Haifa is also faltering in this respect.

Exactly two years ago, HF/2000 - Haifa's master plan - was approved with a target of 330,000 residents by 2025. When the planning committees approved it, they knew that there was no possibility of the city meeting this goal. According to the Central Bureau of Statistics, at the end of January 2021, the city's population numbered a little less than 285,000 residents, reflecting an increase of only 6,000 residents in five years. At that rate, it will reach 330,000 people, perhaps, by 2050. These facts point to a city that is unattractive to outside residents.

Indeed, unlike Tel Aviv, which is located in the largest urban center in the country, Haifa, which is adjacent to nature reserves and green landscapes, competes with other cities, especially the Krayot, but also with smaller, greener localities like Zichron Yaacov to the south, Kiryat Tivon to the east, and the Northern Galilee towns. Many people prefer relocating to a village that is less than half an hour's drive from Haifa.

At the same time, Haifa hasn't managed to attract residents from the central region, despite much lower apartment prices. The result is a very slow population growth rate.

4. Historical problems - Current troubles

Geographer Dr. Igal Charney of the University of Haifa, claims that Haifa apartment prices constitute a "litmus test" for the city's condition. "Haifa's state is the result of historical processes, and the relentless development of Israel's central region, which has held the city back. The historical factors that advanced Haifa during the British Mandate are the same ones hindering its development today," he says. He draws a comparison between Haifa and other cities that have undergone a similar process.

"If we look at the world, various cities are going through a process of de-industrialization, that is, the declining significance of a once great and important industry. Detroit, Pittsburgh in the US, Manchester in England, Glasgow in Scotland and other places. Important cities that were once at the heart of the economy, and declined when things changed. Some have managed to reinvent themselves, others - less so.

"In the past, Haifa was based on the port and the petrochemicals plants from the British Mandate period, which were later joined by Histadrut-owned heavy industries. The industry that has replaced these is still not a large enough growth engine to support a city of slightly under 300,000 inhabitants and a metropolitan area of just under a million residents, "says Charney.

Charney adds that environmental issues are another factor adversely affecting the city's image. "If the Israel Land Authority's 'Innovation Valley' plan is implemented [removing the petrochemical industry and constructing a residential complex in its place - A.M.], it will also have a very significant impact on Haifa," he says.

Charney also wants to make his own comparison between Haifa and Tel Aviv. "What's a 90 kilometer commute between Haifa and Tel Aviv? Anywhere else in the world that distance would be insignificant. Nonetheless, Haifa is unappealing to the center's residents. I think they view Haifa as far-away and unattractive, and prefer a lower-quality apartment that's closer to the center. We must also keep in mind Haifa's topography, because going from Neve Sha'anan in east Haifa to Tel Aviv, for example, is not like going from Neot Peres to Tel Aviv."

As a rule, Dr. Charney says, Tel Aviv is Israel's magnet city. "In a place like Israel, there's room for one major city, and Tel Aviv controls that space," he says.

And so, as the Tel Aviv metropolitan area's dominance grows ever more powerful, it's hard to see what "rabbit" Kalisch-Rotem and the municipal leadership can pull out of their collective hat. Responding to our question on that subject, Charney too sounded highly doubtful about their options.

The Haifa Municipality states: "We would like to draw attention to our intensive urban renewal process, which is inherently more complex and slower than developing new neighborhoods, which artificially and temporarily affect data on housing prices and of course immigration data. Haifa has never had a more comprehensive plan at the scale of the one currently being carried out. Growth and development will take place in the veteran neighborhoods, and not through unrestrained construction on green areas, hills and nature. "

Regarding the city's deep-rooted problems: "The municipality is working to create economic anchors like never before. The city is looking seawards for the first time, taking advantage of existing natural resources, and promoting the establishment of a national maritime innovation center, whose establishment was recommended by the inter-ministerial committee dealing with the topic. The committee's recommendation is of great significance as a lever for the city's continued economic development. The center will integrate with other plans to strengthen the commercial and business areas in the lower city, as part of a range of statutory plans and master plans to renew the entire Haifa business district."

The municipality further stated that it is putting an emphasis on fighting to improve air quality and evacuating polluting industries from Haifa Bay.

Published by Globes, Israel business news - en.globes.co.il - on March 16, 2021

© Copyright of Globes Publisher Itonut (1983) Ltd. 2021

Haifa  credit: PR
Haifa credit: PR
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