Sharp Decline in Apartment Construction in Israel Starts Economic Concerns

Central Bureau of Statistics (CBS) has reported a significant downward trend in new apartment construction starts in Israel. The latest data reveals a stark decline, with only 13,290 new apartments commencing construction during the second quarter of this year.

This represents a striking 26.6% drop compared to the same quarter in the previous year when construction began on 18,123 new apartments. Furthermore, there was a 9.3% decrease compared to the first quarter of this year, which saw the construction of 14,645 housing units. This marks the lowest figure since the COVID-19 lockdown three years ago in 2020.

Over the course of the last 12 months (from July 2022 to June 2023), the total number of housing units initiated for construction amounted to 57,780, with a net construction start of approximately 54,010 apartments. This indicates that roughly 93.5% of these apartments contribute as additional housing stock to the economy, accounting for approximately 3,770 existing apartments that were demolished. Notably, almost half (48.4%) of the total construction starts were concentrated in the Central and Tel Aviv districts, with 24.9% and 23.5%, respectively.

Of the apartments that saw construction commence in the past year, approximately 64.6% were intended for sale, with about 13.0% receiving government subsidies, equating to roughly 4,860 apartments. The Central District led in terms of government-subsidized apartments, with around 2,150 units, representing 44.3% of such construction. Meanwhile, around 35.4% of the apartments started were not intended for sale, and within this category, about 61.4% were designated for self-construction ("build your own home"), around 17.7% were part of combination transactions, and roughly 10.9% were for rental purposes.

The data also reveals that approximately 92.3% of the apartments for which construction commenced in the last 12 months were situated in new buildings, while about 7.7% were added to existing structures, totaling roughly 4,430 apartments. Within the new buildings category, approximately 18% were constructed in buildings with only 1-2 apartments (detached and two-family houses), while around 12.4% were located in buildings with 100 or more apartments, including towers.

In terms of urban renewal, around 11,960 apartments saw construction start as a result of demolishing existing buildings and constructing new ones. Notably, around 55.5% of these were built in the Tel Aviv District, and approximately 25.1% were in the Central District. Of these apartments, about 77.9% (9,310 apartments) were built under the TMA 38/2 and evacuation-construction framework. Furthermore, around 4,430 apartments began construction as additions to existing buildings, with approximately 26.5% of them in the Tel Aviv District and about 19.3% in the North District. Among these apartments, roughly 58.5% (2,590 apartments) were constructed within the framework of TAMA 38.

According to the CBS, several localities experienced a construction boom, with more than 2,000 apartments starting construction over the past 12 months. These include Tel Aviv-Jaffa (4,939), Jerusalem (2,919), Bat Yam (2,703), and Rishon Lezion (2,358). However, it's worth noting that all of these areas witnessed a decrease in construction starts compared to the same period the previous year. Conversely, other localities such as Ra'anana, Kiryat Gat, Rosh Ha'Ein, Ramat Hasharon, Afula, and Sderot continued to experience an increase in construction starts over the last 12 months, following a trend that began in the previous year. Additionally, some localities, including Bnei Brak, Modi'in-Maccabim-Reot, and Eilat, showed signs of recovery, with increased construction starts after experiencing declines in the corresponding period.