The apartment is always bigger on the other side

Lior Regev
Jerusalem Institute for Policy Research en.jerusaleminstitute.org.il

A few months ago the 2017 Arnona (municipal tax) invoice landed in our mailboxes. Next to the total payment due, the invoice notes the size of our apartment, at least as it appears on the municipal registry.

Arnona taxes are one of the main revenue sources for local authorities in Israel, enabling a range of services for residents. Besides size of property, what determines Arnona rates is the property’s use, namely, residential, commercial, services, and the like. Jerusalem has four Arnona districts, each with a different rate per square meter.

As a general trend, apartment sizes in Israel have been steadily increasing over the years. Crumbling public housing, where three children shared a bedroom, might have sufficed in the past, but today every toddler demands a private room. Moreover, living rooms have become a permanent and ever-expanding fixture. And why make do with one bathroom, when we can have two? It is interesting to look at the repercussions of this trend for planning in Jerusalem.

Residential buildings constructed in the 1950s and 1960s offered relatively small apartments. The times demanded housing for hundreds of thousands of new immigrants, and the budget was scant. As of 2015, 56% of the apartments in Kiryat Yovel, 34% in Kiryat Menachem and Ir Ganim, and 43% in the Gonen (Katamon) neighborhoods (A-I) were smaller than 60 square meters (m2).

A decade later, in the 1970s and 1980s, there began to be constructed the large satellite neighborhoods, designed in advance with larger apartments. In 2015, 54% of apartments in the French Hill, 55% in Gilo, and 57% in Neve Yaakov were 61-100 m2 in size. In Ramat Eshkol, another neighborhood constructed during this period, about 60% of the apartments were in this size range. Interestingly, apartment sizes vary among the neighborhoods built during those years because the planners wanted to attract diverse groups. Apartments in the range of 61-80 m2 account for 41% in Neve Yaakov, 40% in Ramat Eshkol, and only 20% in the French Hill.

Jumping forward to the 1990s and 2000s, the trend towards larger apartments continues unimpeded. In two neighborhoods built during those years, Ramat Shlomo and Har Homa, most apartments exceed 80 m2 (82% and 74%, respectively). For the sake of comparison, only 3% of apartments in Ramat Shlomo and 2% in Har Homa are smaller than 60 m2.

So how big will apartments be in years to come?

Translation: Merav Datan

Fair Rent

Yair Assaf-Shapira

Jerusalem Institute for Israel Studies

On November 24, the memorandum of the law for fair rent was published. The law states that the rent paid for an apartment will not increase by more than 2% per year, for three years. How different is the proposed situation from the prevailing one?

The average monthly rent paid for a 3.5 to 4 room apartment in Jerusalem stood at NIS 4,480 in the second quarter of 2014. This amount was much lower than the average paid in Tel Aviv (NIS 6,420), and much higher than the average paid in Haifa (NIS 3,010). The rent for these apartments in Jerusalem saw an average rise of 5.5% in the last year (since the second quarter of 2013 – during a period of four quarters), similar to Haifa (5.5%) and Tel Aviv (5.4%).

Compared to the proposed maximum stated in the law (2% annually), the rise seems to be steep. Compared to the cost of living, measured in the consumer price index, it is even more extreme, since the index rose only by 1% during the period. That means that the average rent rose by more than twice the proposed maximum, and more than five times the rise in the other components of the consumer price index.

Rent prices of smaller apartments in Jerusalem rose by lower percentages (1.3% rise and 4.3% rise in 1.5-2 room and 2.5-3 room apartments, respectively). Rent for larger apartments, sized 4.5-5 rooms, rose more dramatically, by 6.1%.

Will the proposed law change the balance between real estate rent and sell markets? Average purchasing prices for 4 room apartments in Jerusalem stood in the second quarter of 2014 at NIS 1,925,000. These prices rose during the previous year (from the second quarter of 2013) by 9.5% - a very steep rise. Will the prices' change rates be affected by the new law? Only time will tell.

Data sources: Ministry of Construction and Housing – Division of Economic Analysis: Data Tables

www.gov.il – Israel Government Portal

Home Owner

Yair Assaf-Shapira

Jerusalem Institute for Israel Studies www.jiis.org

29 percent of people aged 20 and above in Jerusalem, reside in an apartment they are renting. The rest reside in an apartment they own (60%), or use other arrangements (11%), including an apartment owned by a family member or a friend. This is revealed by the Central Bureau of Statistics' social survey, for the years 2012-2013 (years were averaged to minimize inaccuracy).

The percentage of renters in Jerusalem equals the one in Haifa (29%), and is low compared to Tel Aviv (42%). Interesting to note is the percentage being equal to that in Haifa, since Jerusalem is home to a very large population characterized by a traditional way of life, and we could have expected a lower percentage of renters.

Most of these renters do not own an apartment, but a considerable share does. 16 percent of Jerusalemites residing in a rented apartment (15% in Tel Aviv and only 10% in Haifa) own a different apartment, possibly renting it to others. As a result, the total percentage of home owners in Jerusalem is higher than the 60 percent residing in their own place, and stands at 66 percent in Jerusalem, 61 percent in Tel Aviv, and 71 percent in Haifa.

Of course the people residing in their own apartment sometimes own another one as well. This describes 12 percent of the people that live in their own apartment in Jerusalem, 15 percent in Haifa, and 22 percent in Tel Aviv.

Naturally, the rate of home ownership rises with age. Among young people aged 20-34 in Jerusalem, this rate stands at 55% - slightly higher than in Haifa (at 52%) and considerably higher than in Tel Aviv (at 39%). This percentage rises continuously with age in the three large cities, but in Jerusalem it rises slower, and comes to 79 percent at the age group of 65 and above – equal to the percentage in Haifa (at 79%), but lower than in Tel Aviv (at 86%). The change of the trend between the cities in the older ages may be connected to the difficulty of buying an apartment in Jerusalem, even for the people who are older today, meaning that the difficulty has been prevailing for years. But considering the high apartment prices in Tel Aviv, we can assume that it probably also stems in part from the phenomenon of young people leaving Tel Aviv, having failed to purchase an apartment there.

Data source: Social Survey, the Central Bureau of Statistics

Apartment prices in Israel

Yair Assaf-Shapira

The average price of a four room apartment in Israel is NIS 1.18 Million for a 2nd hand apartment, and NIS 1.26 M for a new one. Data refer to the second quartile of 2013 (April to June), and were compared with the second quartile of 2012. While prices of used four room apartments showed a small descent (-0.6%) over the year, prices of new apartments rose by 1.9%.

The prices represent a combination of supply and demand, which differ from city to city, and between areas in the country. In Jerusalem the prices of used and new apartments are higher (NIS 1.69 M and NIS 1.93 M respectively), and the price trends are opposite than the national ones. The used apartments' price in Jerusalem rose slightly (by 0.4%) compared to the second quartile of 2012, while the new apartments lost 3.6% of their price. Interesting to note that in Tel Aviv the prices of used four room apartments lost 12%, while in the ultra orthodox cities of Modiin Illit and Betar Illit near Jerusalem, they rose by 10%-11%.

Looking at the three room apartments (only used apartments on this market), one can observe that in most localities their prices are on the rise. In Jerusalem they rose by 3.1% during the year (compared to 0.4% in the four room apartments). Dramatic rises were recorded in Bet Shemesh (13%) and Modiin Illit (12%), as well as in various other localities. On average the prices of these apartments rose by 2.6% (compared to -0.6% in the four room market). While no three room apartments are being constructed (mainly because the profit for the entrepreneur is lower on them), it looks like the demand for them is large.

Data source: ministry of construction and housing, department of information and economic analysis

Which City Has the Most Construction?

Yair Assaf-Shapira

Recently Israel’s Central Bureau of Statistics and Ministry of Interior Affairs released the annual publication “Local Authorities,” making it possible to draw comparisons among the various local authorities in Israel along several dimensions. One of these dimensions is construction. The data here relate to the year 2010 and include municipalities and local councils.

The authority with the largest number of housing units whose construction was completed was Jerusalem, where 1,810 apartments were built. More than 1,000 apartments were constructed in three additional authorities: Netanya (1,530), Tel Aviv-Jaffa (1,520), and Petah Tikva (1,030).

Although Jerusalem has the greatest number of apartments among the authorities, the picture changes when the Jerusalem region is compared to the Tel Aviv region. While in the Tel Aviv region – defined as the Tel Aviv and Central Districts – a total of 13,940 apartments were constructed (51% of all apartments whose construction was completed), in the Jerusalem region – defined as the Jerusalem and Judea and Samaria Districts – only 3,460 apartments were constructed (13%). Moreover, in the Judea and Samaria District – defined as the environs of Jerusalem – only about half the apartments constructed were in the immediate vicinity of the city. It appears, therefore, that there is a concentration of construction in the center of the country. This is also apparent if we examine the correlation between completion of construction of apartments and the distance from the boundaries of Tel Aviv-Jaffa. Sixty-six percent of all apartments were within a distance of 50 kilometers from the boundaries of Tel Aviv.

It is also important to examine the number of apartments completed in correlation to the number of existing apartments within the local authorities. This examination indicates the extent of change that a region is undergoing. A comparison found that in Jerusalem, 9 apartments were completed for every 1,000 existing housing units – slightly more than in Tel Aviv-Jaffa (8). Overall, the localities surrounding the city are undergoing more dramatic changes than the city itself. For example, in Givat Ze’ev, 49 apartments were constructed for every 1,000 existing apartments, 24 in Ma’ale Adumim, 18 in Beit-Shemesh, and 13 in Abu-Gosh. Exceptions were Beitar Illit and Mevasseret Zion, where 4 and 2 apartments (respectively) were constructed for every 1,000 existing apartments.

Source of data:  “Local Authorities in Israel,” Central Bureau of Statistics and Ministry of Interior Affairs 

The Young Renter

Yair Assaf-Shapira

During the years 2009-2010 (on average), among 431,000 residents of Jerusalem aged 20 and above, 262,000 (61%) lived in apartments they owned, and 133,000 (31%) lived in rented apartments. The rest had other living arrangements, such as an apartment belonging to a family member or friend. The percentage of renters in Jerusalem was comparable to the figure for Haifa (30%), higher than the figure for Israel (23%), and lower than the figure for Tel Aviv-Jaffa (41%).

As expected, the percentage of renters is not the same across the age groups. The highest percentage was measured among Jerusalem residents aged 20-29, of whom 42% lived in rentals, much higher than the figure for Israel (29%). As age increases, the percentage of renters decreases, but while the percentage of renters among residents aged 30-39 (40%) was only slightly lower than the figure for those aged 20-29, in the age group 40-54 the percentage dropped by about half (22%), and among those aged 55 and above it dropped slightly more (18%). Only in this group is the figure comparable to that of Israel (17%).

A large variance exists with respect to duration of residence between residents who rent an apartment and those who reside in an apartment that they own. While among renters in Jerusalem about a third (34%) had been residing in the apartment (at the time of the survey) for a period of 6 months to 1 year, among those who live in apartments they own only 6% indicated that this was the period of time they had been residing in their apartment. A residential period of 1.5-5 years was also more characteristic of renters (32%) than homeowners (15%). A residential period of 5.5-10 years was characteristic of both groups equally (16%), and the percentage of those residing for longer periods of time was much higher among homeowners (30%-34%) than among renters (7%-12%).

It is customarily assumed that apartment renters are people who cannot purchase an apartment, but the data indicate that a significant portion of renters in Jerusalem (14%) have another apartment that they own. A similar percentage was measured in Haifa (14%) and Israel (15%), and a slightly higher percentage was measured in Tel Aviv-Jaffa (18%).

Data source: The 2009 and 2010 social surveys of the Central Bureau of Statistics

A Brand New Apartment

Yair Assaf-Shapira

The sale of newly constructed apartments serves as an indication of activity in the construction and real estate sector, in terms of both supply and demand. For the most part these apartments are sold “on paper,” that is, before construction is completed. The data below relate to apartments built through private initiatives, not at the initiative of the Ministry of Construction and Housing.

During the first half of 2011, a total of 380 new apartments that had been built through private construction were sold. This figure represents a decrease in the sale of such apartments in comparison to the second half of 2010, during which 630 new apartments were sold within the city. The number of new apartments sold in Jerusalem is also low in comparison to other cities in Israel. During the first half of 2011, for example, 770, 590, and 540 apartments were sold in Petah-Tikva, Netanya, and Ashkelon respectively.

Despite the low figure for the first half of 2011, there has actually been an increase in the sale of new apartments in Jerusalem. During the period from the beginning of 2009 until June 2011 (5 half-year periods), a total of 2,360 privately constructed apartments were sold in Jerusalem – 650 more than during the preceding period of the same duration (July 2006 through the end of 2008).

Similarly, increasing trends were recorded in other cities, foremost among them Petah Tikva and Ashkelon, where apartment sales during this period rose by 1,680 and 1,440 respectively. The opposite trend was recorded in Tel Aviv-Jaffa, Holon, and Rishon LeZion, where apartment sales decreased during this period in comparison to the preceding period.

Compared to other districts in Israel, the apartments sold in the Jerusalem District (including the city of Jerusalem and additional localities) during the first half of 2011 had been on the market a relatively long period of time, measuring from the start of construction until their sale. These apartments remained on the market approximately 7 months (median value), compared to 1.7 months for the national median. For the purposes of comparison, during 2010 apartments in the Jerusalem district were “snatched up” within only 1.3 months, compared to 2.5 months for the national median.

 

Sources: Survey of New Dwellings for Sale under Private Construction (for the years noted), Central Bureau of Statistics; Statistical Yearbook of Jerusalem, 2011.