Homes in Israel cost more than anywhere else in the OECD.
“The People of Israel will rent the ruins whose prices have been raised greedily, and the ground-floor apartments and divided spaces of the city from the north to the south. The People of Israel will rent stinking hovels at any price, and the People of Israel will rent at excessive prices since they have become used to being exploited,” said one of the posters from last summer’s social protests.
Rental prices may have driven the people onto the streets in protest, but rental prices have not risen at the same pace as the cost of buying homes over the past three years. Despite the protests, it is now harder to buy a home. To buy a four-room apartment takes an average of 138 monthly salaries, five more than in 2010, according to a survey conducted by the Housing and Construction Ministry, released this month.
In simpler terms, the average Israeli needs to work 11 and a half years to buy an average apartment. To buy a bigger home, a five-room apartment would require almost 16 years of work, or 191 monthly salaries. By comparison, in 2008 it took only 106 salaries to buy the four-room apartment and 154 to buy the five-room home.
The equation of an especially low supply of homes in the center of the country combined with low interest rates has kept real estate prices high. The survey shows that the major problem in the housing market is not home prices, but real, inflation-adjusted wages, which have not risen at all since 2005. This is what makes it harder to buy a home today.
Compared to other OECD countries, Israelis are at the top of the rankings – in how expensive it is to buy a home. The Japanese needed only 64 monthly salaries to buy a home in 2010, based on OECD figures.
Meanwhile it took 76 salaries in Germany, and the Americans and Swiss needed to spend 93 monthly salaries to buy their homes.
But after almost four years of price increases, 2012 could mark a turnaround for home buyers. The social protests sent many potential buyers in to a holding pattern and the number of home sales in January plummetted to the levels of 2005 – and signs of a drop in housing prices even began to appear.
At the end of 2011, the average price of a home in Israel was NIS 1.16 million, reports the Central Bureau of Statistics. This was 4% less than the average price at the end of the previous, third quarter, and 3% less than the price at the beginning of last year.
Of course, such an average is problematic. It includes prices from both the center of the country and the periphery together. But the Finance Ministry supplied another indicator from January – a 13% fall in the prices of new homes in 2011.
It is much harder to buy a home in the center of the country than in the periphery. The price of a single room in Tel Aviv is similar to the price of four-room apartment in Tiberias. The price per square meter in Herzliya is equal to the price of 2 square meters in Ramle; and you will pay twice as much for an apartment in Rishon Letzion as for one in Kiryat Ata.
Got NIS 2.12 million?
To buy a home in Tel Aviv, you will now have to part with, on average, NIS 2.12 million, compared to NIS 2.49 million in the first quarter of 2011. The Global Property Guide website says Tel Aviv is the 16th most expensive city in the world, and buying a home in Israel is 25% more expensive than Canada, 55% more than Berlin and 75% more than New Zealand.
And what about rental prices? Renting a four-room apartment in Israel costs an average of NIS 3,640 a month – NIS 90 more than at the beginning of 2011, the statistics bureau reports.
Even if rental prices are on the way down, there is a serious problem this year for potential home buyers: The Bank of Israel has toughened the criteria for receiving mortgages. The central bank placed restrictions on granting mortgages and limited the use of variable-rate mortgages, which are particularly enticing in times of very low interest rates. In reality, these steps were intended to protect the banks and home buyers, but may have been premature. Interest rates actually went down since the measures were implemented and are not expected to rise any time soon.