Israel records the fastest rate of growth in rental prices since 2008

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Rent growth in the housing market showed the highest annual pace since 2008, according to the Central Bureau of Statistics. Rent increased by 8% over the past year and is fueled by rising interest rates and inflation. O It is expected that rents will continue to rise this year as well.

On the ground, there have been reports of tenants complaining about a sharp increase in rent for apartments (well over 8%) by their landlords. The statistics confirm these claims only partially.

But a clear picture of a significant increase in rent is emerging. In 2020 rents have barely risen due to the outbreak of the COVID-19 pandemic. In 2021, rents increased by 3.3%, and in 2022, rents increased by 6.3%, with most of this growth occurring in the second half of last year.

In addition, starting from 2021, the seasonal trend in the rental market began to decrease. This market is characterized by high demand after Passover and during the summer months, which leads to rental prices peaking in June and July. In autumn and winter, demand decreases, and landlords are more inclined to compromise on price. However, in 2021, the decrease recorded in winter was insignificant, while this winter, the increase in rental prices continues, albeit not at the same pace as in summer. From May 2022, the index housing services rose by 5.6%, not seen since 2010, and the strong link between rising prices and rising interest rates cannot be ignored.

The first factor pushing rents up is that when When interest rates rise, investors' incomes fall because their financial costs rise, and to compensate, they raise rents.

Dr. Yair Duchin, head of the Hebrew University Jerusalem Business School MBA program in real estate finance, says: “Most of the apartments owned by investors were bought with mortgages, and when interest rates rise, their debt also rises, and they pass it on to rental price.

The second factor, which seems to be even more significant, — it is a decrease in the number of apartments being bought. The less people buy apartments, the more people need to rent them, which increases the demand for rented apartments.

These two factors put upward pressure on rents when interest rates rise, and this is the opposite of apartment prices, which tend to fall when interest rates rise. .5% to 4.25% — the eighth rate increase since April last year, when interest rates were at a historic low of 0.1%. The interest rate is now at the same level as in 2008. In 2023, people have been caught off guard as they have become accustomed to low interest rate conditions over the years.

Inflation is another factor pushing up rents, and it is no coincidence that rents rose at the same pace as they do today during the 2008-2011 period when interest rates and inflation were rising.

Dr. Duchin says: ” ;The fundamental factor is the level of inflation, and so far we see that the Bank of Israel is not able to cope with it. The only thing the government can do is to approve a restrained budget, but this is contrary to the requirements of the coalition partners, so it is not certain that they will be able to achieve this goal.

Dr. Duchin raises another issue: “I hope that the government will not try to pass a populist law that will prevent landlords from raising rents. A law of this type could cause another sharp decline in the stock of investment apartments, since in such a situation investors in the real estate market would prefer to sell apartments and withdraw their money from the market.

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