Since 2022 Jerusalem has emerged as Israel's biggest real estate market in terms of new construction, replacing Tel Aviv that led the way until a few years ago. Over the past year there have been nearly 5,800 new building starts in Jerusalem, a national record in the 21st century, according to the Central Bureau of Statistics. The jump in new construction is likely the first fruits of the strenuous building policies of Mayor Moshe Lion.
New construction in Israel is more dispersed than in the past due to the policies of the National Planning and Building Commission and the Mechir Lemishtaken government subsidized housing program, which have brought new housing construction to the periphery and neglected locations in central Israel.
Despite all this Jerusalem and Tel Aviv have been the two dominant cities in terms of new housing. In 2023, one in every six new apartments under construction was in Jerusalem and Tel Aviv.
A leap forward
Between 2016 and 2021, there was an acceleration in the construction of new homes in Tel Aviv but in 2022 Jerusalem once again surpassed its coastal rival. According to the Central Bureau of Statistics, the scale of construction in Tel Aviv continues to be high, but Jerusalem has leapt ahead. Both cities reported record building starts last year. In Tel Aviv, 5,083 apartments were started last year while in Jerusalem, there were 5,781 building starts - an addition of 2.5% to the number of existing apartments in the city.
This cannot be explained as a one-off event, but as part of a process. In recent years Mayor Lion has been promoting an open-door policy for real estate developers who are interested in building in the capital, and sometimes developers find that it is the municipality that pressing them to start building.
Lion says he realized in his first term that construction did not meet the demand. He says, "Jerusalem has strong demand from young couples who are looking for apartments, from those who want to move to apartments in the city, and there is also a strong demand from abroad," he says. "Over the last year, and especially in the last few months, we have seen a lot of demand from abroad, mainly from the US, England and France. All these have previously encountered a severe shortage of apartments. All this has created a severe shortage of apartments in the past. The speeding up of construction has been led in recent years by the city engineer while the manager of the licensing department in the municipality has earned the city a good name."
Among other things, the Jerusalem Municipality has set up a development department to remove obstacles and promote the granting of building permits for projects. When the projects leave the department, they reach the licensing department, which also strives to speed up procedures. Jerusalem City Engineer, Yoel Even says that he is not surprised by the latest data. "We call developers and press them to start, ask where there are problems that need to be solved, and hold round tables, all with the aim of removing obstacles. Ultimately, there are results," he stresses.
This is a different approach to much of Israel, especially the biggest cities, where residents have a negative attitude towards additional construction in the city, especially in TAMA 38 (earthquake retrofit) and urban renewal (demolish and rebuild) projects, and the municipalities act lazily. "There are municipalities that act passively and let the bureaucracy manage them. We have changed the approach," Even insists.
When it comes to the overall number of deals for buying apartments, there is almost no competition between Jerusalem and Tel Aviv. For the past few years, Jerusalem has led the number of deals, while Tel Aviv has slipped to third place, behind Haifa; According to the Central Bureau of Statistics, in 2023 Tel Aviv fell to fifth place, after Beersheva and Ashkelon. Only 2,620 apartments were sold in Tel Aviv, while 4,915 apartments were sold in Jerusalem, 3,707 in Haifa, 3,498 in Beersheva and 2,694 in Ashkelon.
In 2023, the overall number of deals dropped by 33% from 2022. In Jerusalem, the fall was 18%, while in Tel Aviv, the fall was 40%. Although the Central Bureau of Statistics does not have data on all the deals in all cities since 2021, it does have the partial picture of purchases of new apartments. In Tel Aviv there has been a 70% decrease in the purchase of new apartments between 2023 and 2021. In Jerusalem, on the other hand, the number of new apartments purchased in 2023 was similar to that of 2021 (2,476 compared with 2,491).
This is explained by two factors. Firstly by the apartment prices in both cities. Here, Tel Aviv leads by far with apartment prices there tens of percent higher than those in Jerusalem, especially in the large apartments with five rooms or more, which in Tel Aviv reach NIS 6.7 million on average, and in Jerusalem 'just' NIS 3.9 million. No wonder that the average apartment purchased in Tel Aviv is a median size of 2.5 rooms, while in Jerusalem it is 3.5 rooms. The second factor is the connection between the economic situation and the real estate market in Tel Aviv, which is particularly close, due to it being the financial and business capital of Israel. Since the high-tech crisis and the increase in interest rates in 2022, there has been a sharp slowdown in the number of deals in Tel Aviv, which, at least until now, has not been accompanied by lower prices.
Even says that over the last two years the Jerusalem Municipality has issued building permits for 4,000 apartments as part of urban renewal projects, which guarantees high figures for the years to come. Lion says that the problems faced by the construction industry are felt in the capital as well, but he is sure that the data from 2022-2023 are just the beginning: "I estimate that good figures will be reflected in the future as well. This will also solve the problem of the negative immigration that characterized the city," he says.
And what about Tel Aviv? Its dependence on the national economic and business situation does not guarantee good things for its real estate market in the coming years. Construction activity in the city is still high, and construction starts broke records in 2023. But at the same time, the city also holds the record for the supply of new unsold apartments (about 7,400), and signs are that the rate of construction in the city will fall.
Published by Globes, Israel business news - en.globes.co.il - on March 26, 2024.
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