Biggest apartment rent rise in 15 years in 2022
Israel’s Housing Services Index, which measures rents, rose 6.3% in 2022, the highest annual figure for 15 years. The figure measures the rise in new contracts signed between landlords and new tenants and existing tenants, and exceeds the 5.3% rise in the Consumer Price Index (CPI) last year. On the other hand, while 27% of Israeli households live in rented accommodation, the rise in rents falls well below the 18.8% rise in housing prices between November 2021 and November 2022.
If we take as an example an apartment for which the lease was NIS 5,000 per month, then a renewed lease, after the 2022 increase, would add another NIS 315 to the payment every month. In an apartment for which the lease was NIS 7,500 per month, the increase would translate to about NIS 470 per month in the new contract.
But this is a very rudimentary calculation, which doesn’t take into account many relevant factors, which Dr. Yair Duchin Head of the Hebrew University of Jerusalem Real Estate Financing MBA program explains. “You have to remember that the increase reflects a certain average of the increase in renewed leases. In reality, of course, there is a distribution and variation between the apartments, in terms of the quality of the apartment, the size of the apartment, the place where it is located, and more.
Usually, the rent increases more when the tenant changes, and increases more moderately when the tenant stays and extends a contract. The connection, familiarity, and a certain degree of kindness — all of these usually cause a more moderate price increase when the contract is renewed.”
There are even those who claim that the high rise does not reflect the situation in the market. “Rental prices in practice rose by more than 6.3%,” insists Zeev Schumacher CEO Schumacher Realty, which specializes in second hand real estate and marketing projects and purchasing groups in Modi’in. “This is only a statistical figure. Market forces have had an impact and the Central Bureau of Statistics only formulates the retroactive situation.”
He adds that the rise in rents over the past year was inevitable. “The rise in apartment prices meant that many could not afford to buy a new apartment, and this causes more and more people to stay living in rentals. That is why there is an excess demand for apartments for rent, and when there is high demand, naturally rental prices go up. These are market forces. It also effects the investment apartment market: the purchase cost has become more expensive, and in order to make a profit the landlord must raise the rent.”
The Housing Services Index is part of the CPI and thus one of the components contributing to inflation. It represents 17.5% of the CPI and the overall housing category (actual housing prices are not included in the CPI and are measured separately) represents 25% of the CPI. This creates a situation in which the rise in rents fuels inflation and is fueled further by it.
Bank Hapoalim chief strategist Modi Shafrir explains, “This index very much influenced inflation in 2022 because it was one of the main components with a significant rise over the past year. In practice, the housing clause very much influenced inflation over the past year. On the other hand, a rise like this in the indices also influences future rental prices because people see the rise in the CPI and haven’t yet hiked the rent they collect from their tenants and they realize the time has come to raise the price.” Dr. Duchin adds, “There is no doubt that the housing clause is the biggest consumer burden on Israelis today. On the other hand, if it falls or moderates significantly, it will of course effect the CPI in the other direction. So one of the indications of halting inflation is a halt in rent increases. If we do begin to see a decline in this index specifically, this could be an indication of a potential easing in inflation.”
Adv. Maya Carmi, head of the professional department at Meir Mizrahi & Co. law firm and a specialist in real estate law says, “The gap between the rise in the Housing Services Index and the Housing Prices Index creates a situation in which the public is harmed in every situation. It’s true that due to the annual increase in the Housing Services Index, the purchase tax threshold on a first apartment rose – but while they rose by 6.3%, apartment prices increased by almost 20%, so there is no match between the rise in the threshold and the apartment price. Today’s average apartment price is far higher than the exemption threshold, even after it went up. The same is true for the exemption from the betterment levy for a first apartment. The gap from the exemption threshold has only grown in the last year, without any proportion, so the buyers still pay a lot, also in taxation.” (Globes/TNS)