Long-term rentals promoted by the government, accounts for 10%-20% of the rental market in OECD countries. In terms of the Israeli rental market, which has about 800,000 housing units for rent, this amounts to 100,000-160,000 housing units. In practice, the institutional rental market in Israel currently offers a little over 5,000 rented homes, with another 15,000 under construction. 20,000 homes for rent in total, which constitutes 3% of the rental market, and even that is only when the numbers are generously rounded up. This is the figure after a decade of activity by the government company Apartment for Rent, which was founded to transform the reality on this issue.
In 2013, two government resolutions, 770 and 796, were passed to establish the Apartment for Rent company, which aims to "assist the government's efforts in developing the institutional rental market." The company was founded in 2014. To date, the company has not succeeded in bringing about any real change in the field, and although recent years have been better, the bottom line is clear: the long-term institutional rental sector is very far from where decision-makers would like to see it.
The data: An average of 1,500 apartments per year
Until 2020, only about 1,000 housing units were offered in tenders each year, and several hundred were successfully marketed. The turning point was in 2021, which led to a leap to thousands of housing units successfully marketed: 4,902 units that year, 4,402 in 2022, and 2,081 in 2023. In 2024, only 474 units were successfully marketed for long-term rental, but a senior official told "Globes" that the final number may be higher.
"Most of the tenders will close at the end of the year, or at the beginning of 2025," says the official, "a situation that generally typifies the country's marketing."
The change that began in 2021, say those in the industry, came about due to a change in policy: "It's a matter of ministerial policy: Kahlon pushed mainly for a price per tenant during his time, and when Zeev Elkin entered the Ministry of Construction and Housing, and the company moved under his responsibility, there was a significant increase, to numbers not seen before."
Still, the numbers remained low. Even the years in which the numbers were relatively large did not contribute significantly to changing the picture, and according to data from Israel's financial statements for 2023, plus data from the RMI website for 2024, about 80 tenders had closed by the time of writing. For long-term rentals since the beginning of Apartment for Rent's operations, of which 16,259 units were marketed. In other words, during the decade of the company's existence, only a little more than 1,600 units were successfully marketed on average per year.
Apartments for Rent CEO Inbal David says, "The pace of marketing is a function of existing supply as well as government policy, which in the last four years has led to the pace of marketing increasing significantly. In terms of increasing supply, the significant tool is statutory planning: as of today, Apartment for Rent is planning about 110,000 units, of which more than 41,000 units are for long-term rental."
The problem is that, of course, not everything depends on Apartment for Rent, even if it promotes the planning itself. An example of this was seen this week. The Planning Administration announced that a long-term rental plan has been approved in Jisr az-Zarqa, which includes 1,250 apartments and office space. The supply of apartments for rent in Arab towns is almost zero, but the implementation of this plan depends on diverting Highway 2 eastward, which is not budgeted for at the moment.
In the past, David has illustrated the distance between the situation on the ground and the aims of the company, and the government in general, regarding the long-term rental market. She told "Globes," "In order to create a statement, influence and normalize this market, institutional rent needs to be at least 15%. A target of 10,000 marketed units per year - not just this year but in each of the following years - is a necessity for me." We emphasize that the definition of "marketed units" here refers to the number of units offered for marketing in long-term rental tenders each year, and not the number of units that were successfully marketed.
The challenge: 10,000 housing units per years seems far off
The bottom line is that marketing has also fallen far short of the decision-makers' ambitions. Even in the good years between 2021 and 2023, the company failed to reach its target of 10,000 units per year, and the highest number recorded was 6,500 units that went on the market in one year - significantly higher than previous years - but not close to the target.
In fact the government has not set organized targets for the institutional rental market every year, thereby perhaps signaling that reaching the target is not the most important thing. In 2019 and 2020, no targets were set for the sector by the government, and the same was true this year.
"It is impossible to say that there is no attention to this sector from the government," says the same source we spoke to for the article, "because things have been done and right now the Director General of the Ministry of Construction and Housing is promoting a strategic plan for the rental sector, which is a very brave and important move.
"And yet, if the state doesn't set a target - how can we say that it supports this sector and helps it get where we want it to go? We must maintain the existing marketing pace, and also reach 10,000 marketed housing units per year."
The future: "Sde Dov seems a major attraction"
To all the data presented so far, the interest rate must be added. After it was raised continuously from mid-April 2022, reaching a peak of almost 5%, it caused an almost complete halt in the long-term rental market, where profits are greatly affected by the level of interest rates in the economy. Since then, there has been a recovery, and it seems that developers in this field have also "digested" the new reality, but the halt certainly did not contribute to increasing the pace.
This may be one of the reasons why in 2024, only nine tenders with 1,846 units have closed so far, and of these, only 758 units have been successfully marketed - of which only 463 are for long-term rental (the rest will be sold on the free market).
As for the pace of marketing this year, Apartment for Rent says it is possible to reach marketing of almost 7,000 units (in tenders that have not yet closed), or in the first quarter of 2025 but then this number will not be included in the 2024 figures and the current picture will remain unchanged. Among other things, this includes the large series of tenders in Tel Aviv's Sde Dov district, which included 1,679 units for rent. The closing of some of these tenders was postponed to the last day of 2024, and others to the middle of this month.
Nevertheless, the senior official "Globes" spoke to remains optimistic: "Even during the war, tenders have been closed, including in the most challenging locations. It is true that the major developers are sitting on the fence, but many new developers have entered the field.
"The field has not closed, and it is not true to say that there is no market for long-term institutional rentals. The market is returning, and in the major tenders such as Sde Dov, we will once again see the strong and large developers."
Inbal David says optimistically, "Even today, in the high interest rate environment, which certainly weighs on project financing, we are witnessing several positive trends, including the joining of institutional entities as partners in long-term rental projects, which recognize the business potential of long-term investment in income-producing residential real estate."
Published by Globes, Israel business news - en.globes.co.il - on January 6, 2025.
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