Tel Aviv resident Ran Binya is caught between two conflicting forces in the city he loves.
On the one hand, he’s enjoying a golden age in the real estate business he founded 16 years ago. “It’s been a long time since we’ve had such a crazy period for housing demand and deals like we have now,” he says. “Properties are being snatched up – and I’m not talking only about new apartments straight from contractors but rather people looking for a bigger place who plunk down a huge amount of cash to buy second-hand apartments in the center of town. Just this week I sold a large three-room apartment in the center of town for 5 million shekels ($1.5 million), which was on the market for barely a week an a half. A similar apartment was sold in the same building three months ago for 4.5 million shekels.”
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On the other hand, Binya, a 46-year-old married father of two, can’t afford to buy his own apartment in Tel Aviv despite the handsome commissions he gets. Instead, he rents an apartment near Kikar Hamedina. The neighborhood, which had been considered quiet and aging until recently, is now undergoing renewal with an enormous high-rise project in the middle of the huge traffic circle and a multitude of urban renewal projects in the surrounding streets. Prices are responding accordingly.
“I am part of the middle class, the kind of person who didn’t work for a start-up that went public or earns 40,000 shekels a month. We have to be rescued. The price of moving into the city is climbing, and meanwhile I am the shoemaker who goes barefoot,” he laughs. “Seriously, if things go on this way, the center of town will become homogenous and full of only people with money. My fear as a resident is that the options will keep shrinking, the magic will disappear and Tel Aviv will become a bubble for the rich, more so than it is today.”
Tel Aviv municipality officials are following developments in the local housing market with concern. New research, conducted by Tel Aviv University researchers in partnership with the city’s economic branch and the Institute for Local Government, found that the price of a typical four-room apartment in Tel Aviv rose 50 percent between 2011 and 2020, compared to 32 percent for a similar apartment in 11 other large Israeli cities. The average in Tel Aviv in 2020 was 3.078 million shekels, compared to 1.7 million shekels in other cities. The growing gap between “the state of Tel Aviv” and cities in the periphery creates high entry barriers into the big city and demonstrates how housing has been a driver of inequality in Israel.
“Owning a home in Tel Aviv is an option for the top decile in the best case, and to a small part of the top decile in the worst case,” says Prof. Danny Ben-Shahar, director of the Alrov Institute for Real Estate research at Tel Aviv University’s Coller School of Management, who conducted research with Dr. Sagit Azari-Viesel, a postdoc at UCLA and lecturer at TAU, and Dr. Ravit Hananel, the head of the Urban Renewal and Housing Policy Lab in the university’s public policy department.
The research, presented at the fourth conference for municipal economy in June in Tel Aviv, indicates that 3-4 room apartments in Tel Aviv are out of the price range for most Israelis. Five-room apartments are available only to the top decile, and the only members of the top decile who can own a Tel Aviv apartment without inheriting it are the households earning on average at least 52,000 shekels a month – more than triple the median household income of 16,000 shekels.
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State of the millionaires founded at Basel
Many Tel Aviv locations are expected to get an expensive facelift in the coming years. If the municipality doesn’t take drastic steps, rising prices will only exacerbate the ongoing exodus of young people who can’t afford to live in the city.
The demolished Magen David Adom first responders’ building, which took up a significant portion of Basel Square, illustrates the process. Reminders of the functional spaces inside the building that was there for some 50 years still poke out from among the ruins, but the remnants of that era will give way to a new exclusive chapter in the coming months.
The developers, a partnership of the White City Builders company, the JTLV 2 Fund and Isrotel, which bought the land from the city, paid 250 million shekels ($77 million) for the property. The $600-million project will include a deluxe 130-room hotel and just 13 apartments, some of them penthouses, with a starting price of 26 million shekels ($8 million). The developers say the average apartment size will be about 300 square meters. Residents will be able to enjoy the hotel’s facilities, from the spa and sauna to the gym and swimming pool.
“Buyers into the project are people who currently live in gigantic houses in Caesarea, Herzliya or [Tel Aviv’s] Tsahala neighborhood who want to move into the city,” says Amikam Berger, vice president of White City Builders. “Other clients include the new high-tech crowd – young people who made an exit and are interested in enjoying life in the center of town. Because the facility didn’t need a new municipal building plan, the city didn’t demand that some of the units be allocated for rent or affordable housing.”
Berger says that the high prices in the city center stem from the methodical limitation of building additions, which are restricted in part because of the UNESCO’s White City declaration of Tel Aviv that limits building height, as well as from the conservation plan, the neighborhood urban renewal plan and the national development plan. Additionally, the city has fixed up the streets, including infrastructure replacement, and has been behind the Tel Aviv Global project, which have dramatically improved quality of life in the city and has sent demand soaring among those who can afford it.
Basel has been long one of the most desirable neighborhoods in the city. Prices there are sky-high, at about 51,000 shekels per square meter for old apartments. Last August, a 60-year-old, three-room apartment measuring just 60 square meters sold for 3.1 million shekels. Similar deals from last year indicate similarly high prices. However, the mix of two-room and three-room apartments in the neighborhood allows young adults and families starting out to compromise on living space and stay in the area.
“The neighborhood is full of families with kids, who continue to live here despite the rising prices, and there are many family-oriented neighborhood activities,” says Dror Perry, owner of the Open House real estate agency, which has operated in Basel around 12 years. “There are also relatively well-off people in their 30s looking for 90-square-meter or larger apartments for their families, who are prepared to pay even 5.5 million shekels for a fixer-upper with parking and an elevator. So even before the luxury project goes up you could say it’s expensive here. This is not your average Israel. Just a 15-minute ride away – in Ramat Gan or Bat Yam – you can get the same place for considerably less.”
Perry says he expects prices to keep rising, which will limit who can move in. “It’s reasonable to surmise that mainly high-tech workers from companies going public on Wall Street for billions of dollars, many of whom have options, will be the ones who can afford to live here,” he says. “We are also in touch with many people abroad interested in buying an apartment – Jews from Britain, some from France and Israelis who want to return from the United States. The situation is such that we are chasing after properties, not after clients because demand is outstripping supply. And City Hall? I don’t see it making an effort to keep young people here with affordable housing like it’s doing in other places, and there will be a price for that.”
A similar process is happening in Kikar Hamedina, where a huge 1.4-billion-shekel ($430 million) project that drew competition among the industry’s biggest firms is going up. After years of neglect and planning difficulties, three 40-floor towers with 450 units each are to be built inside the gigantic traffic circle. There will also be a 10-floor building for public uses. Over the past year, sales have increased as the project has progressed, and it’s no surprise that the starting prices have been 60,000 shekels per square meter. While other luxury projects in recent years have seen prices of 100,000 shekels per square meter or more, the current phenomenon portends the spread of luxury towers to the central and northern neighborhoods, which traditionally housed young adults and families starting out.
So how much money do you need to live in Tel Aviv? According to the municipality’s latest annual statistics, the average household in Tel Aviv spends 18,800 shekels per month – 114 percent more than the national average. Standard costs per person are 9,188 shekels – one-and-a-half times the national average.
1.5m shekels of equity
Still, the most worrisome statistic is the enormous housing outlays relative to household income. “The research revealed that Tel Aviv households spend more than 50 percent of their income on housing – rent or mortgage – compared to an average of 36 percent for the OECD. That means that a significant proportion of our residents don’t have enough disposable income to cover health, education, welfare and culture,” Hagit Naalay Yosef, the director of the municipality’s strategic planning unit, says.
For example, the price gap between Tel Aviv and other Israeli cities for five-room apartments, which are inhabited mainly by families with children, is more than double. While the average mortgage for such an apartment in Tel Aviv is 17,800 shekels a month, the average in other cities is 8,108 shekels. The gap was found to have grown from a difference of 1,000 shekels for three-room or four-room apartments in 2000 to 4,000-5,000 shekels today.
Aviv Shapira, the municipality’s youth unit manager, is worried about the future for young adults in the city that never sleeps. “Young people move to Tel Aviv these days at a relatively later age than in past, only after they have a full-time job to cover the heavy housing expenses in the city. If previously they moved here by the time they were 22 or 23, now it’s 27, after their B.A. Our job is to keep them here with reasonable prices, not necessarily to buy an apartment.”
Municipal planner Naalay Yosef concedes the demographic change could hurt the city. “The urban vision and the guidelines of the strategic plan and the development plan are that Tel Aviv is a city for all its residents, attractive to a heterogeneous population and promoting equal opportunity and a narrowing of gaps,” she says. “We are busy planning and implementing activities reflecting this vision. A good city is pluralist and varied – and it’s clear to us that the housing market is the key to this.”
However, intentions are one thing and reality is another, at least for now. “A deal in Tel Aviv has a premium that the coronavirus didn’t wipe out despite all the warnings [about a decrease in demand],” says Ran Binya, the real estate agent. “In other words, people are still prepared to pay a higher price for a three-room apartment in the heart of the city than in the Ramat Aviv neighborhoods or for larger apartments outside the city. I work strictly with clients who I verify in the first conversation have the wealth or financing to buy the apartment. That means in many cases equity of at least 1.5 million shekels. Competition for every apartment is great – there are sometimes 20 people waiting to see a place to buy. I advise clients to start the bank process well before buying a place so they’ll be able to put money on the table at a time when the market is hungry and there is competition for every apartment.”
The municipality’s research also supports Binya’s assertions, showing that 1.3 million shekels for a down payment is needed to buy a three-room apartment in Tel Aviv with a 20-year mortgage that wouldn’t eat up more than 30 percent of the buyer’s monthly income. For that sume, one could purchase an entire three-room apartment in Petah Tikva’s Ein Ganim neighborhood.
Similarly, a four-room apartment in Tel Aviv requires a 1.9-million-shekel down payment, the equivalent of the purchase price of a cheaply built four-room apartment with a seaside view in Hadera. A five-room apartment in Tel Aviv requires a 3.5-million-shekel down payment, compared to an average of 630,000 shekels elsewhere in the country and 1.2 million shekels for four-room and five-room apartments, respectively, in 11 other large cities. The growth rate of the down payment needed to buy in Tel Aviv rose 68 percent between 2011 and 2020, compared to 13 percent elsewhere in Israel.
“The population here will become another type of population. It’s a danger and enormous threat to the city,” warns. Prof. Ben-Shahar.
The danger lurking in a homogenous, rich city lies not only in its image but rather in its content and growth engines emptying and the city becoming economically weaker. “Research shows that cities with a range of housing types, age and income are more economically successful,” says Hananel. “Heterogeneity is important to a city. It is not a matter of bleeding-heart leftism and should also interest the so-called capitalist pig. A city needs blue collar workers, artists and intellectuals.”
However, the city is pushing out those who are lacking means. According to municipal data, the household poverty rate in Tel Aviv is 8.5 percent, far below the national average of 18 percent.
“All of metropolitan Tel Aviv has become wealthier and whiter, and has greater access to opportunities and resources,” says Hananel. “The gaps between it and the periphery are widening dramatically,” she notes, adding that curbing this process “is a goal that should be important not only for the mayor of Tel Aviv but also for the government and the entire country.
“Research shows that in order to maintain a democratic society, residents need to be exposed to a diverse population, which teaches tolerance. Cities with extremes – a weak periphery and a rich center – create radicalized enmity between citizens and new types of ghettos.”
It’s not just about supply
One of the most common solutions for dealing with high housing prices and a lack of affordable housing in major cities is expanding the housing supply, as the city is planning in the Sde Dov neighborhood and in areas slated for urban renewal in the south and east of the city. The economic logic at the base of these proposals is that expanding the supply leads to lower prices.
A review conducted by the Madlan website at the request of TheMarker indicates a noticeable decline in the pace of building permits being issued for new construction and tear-down urban renewal projects between 2014 and 2020, compared to a rise in permits under National Construction Plan 38 (which enables renovating buildings in order to bring them up to earthquake code while adding more housing units) during the same period. The number of units added to the market during these years fluctuated between 2,260 and 3,700 homes per year.
However, the research surprisingly points out that in certain cases in the world, increasing the housing supply actually led to a rise in housing prices. This phenomenon is connected to the rise in demand in the wake of global urbanization trends and aging populations. In Tel Aviv, increasing supply also failed to do wonders, probably because it didn’t keep up with rising demand.
Dr. Sagi Azari-Viesel believes the solution involves not only increasing supply but also intervening in the type of apartments being built in the city. Change is unlikely, he says, unless the municipality demands housing units be allocated for long-term rentals or affordable housing at a regulated rate. “In the United States, which isn’t a welfare state, most of the states require a significant allocation of affordable housing in major cities − 20 percent of the units in a project. However, it doesn’t happen in Israel, in which the state owns most of the lands,” she says. “Despite all the government plans and municipal declarations, the number of projects in which the state actually managed to obligate developers to build affordable housing is negligible.”
Hananel asserts that the Tel Aviv municipality also has shown weakness in the face of strong market forces. “Tens of thousands of housing units were built in the heart of Tel Aviv in recent years, without them insisting on a minimal number of affordable housing units,” she says.
Despite the gloomy situation, Ben-Shahar believes it is still possible to change things. “We need to stop the train, but it will happen only if the government decides on clear, forceful regulation – and acts quickly.”
Tel Aviv municipality officials understand the dangers and are trying to take independent action without the national government, but results have been limited. The city used the year lost to coronavirus to formulate an urban housing policy with an emphasis on diversity and different communities, including elderly people of lower socioeconomic standing. The plan is supposed to be released in the coming weeks. The goal is to enable middle class families and young people to live in city centers, especially against the backdrop of increasing housing prices.
Only 264 affordable units
Currently, there are 264 affordable units that are occupied in a range of projects in the city – Ganei Shapira, Yad Eliyahu, Michaelangelo in Jaffa, Midtown Project, Yesod Hamaaleh, the Sitoni Market, the Aliyah Market and Project WE. In parallel, there are about 5,000 affordable apartments in various stages of planning across the city.
“The data shows the great crisis of access to housing in the city and the existing limitations in the rental market,” says Hagit Naalya Yosef of the municipality. Most of the proposals are focused on this crisis, and the policy paper will propose the tools to manage it, she adds. “We are tackling the issue with a wide range of tools, including mandating affordable housing in projects and encouraging long-term rental ventures.”
What other cities do
“The development plan will be adjusted accordingly and will mandate many projects,” adds Naalya Yosef.
“All major cities, like London, Hong Kong and New York do it, and that’s how it happens and will continue to be in Tel Aviv. It is necessary. We are ramping up our familiarity with the institutional market to move as much as possible toward removing obstacles and making the market, regulation and national policy more sophisticated. We are constantly learning about the variety of needs of the city’s different populations,” she says.
“The problem is that the state is still not on board with taking significant action on housing, and it prefers focusing on increasing the supply of land and maximizing revenue from it, and less so on the type of housing. If there is no change, the problem will only get worse. It’s not strictly a problem for Tel Aviv.”