Israel unveils measures to restrict short-term rentals

Israel: The Israeli government has held a press conference in which it set out its plan to address the high cost of housing in the country and place additional restrictions on short-term rental platforms including Airbnb.

Israel’s finance [Avigdor Lieberman], interior [Ayelet Shaked] and housing [Zeev Elkin] ministers convened with the press on Sunday to announce that they were planning to reduce land taxes, cut red tape, and restore an eight per cent purchase tax [from six per cent] on second / investment homes that had been lowered earlier in the Covid-19 pandemic.

Furthermore, the government is looking to transfer up to 13,000 apartments into ones available on a long-term rental basis by introducing new legislation for the short-term rental market.

According to Bloomberg, the high cost of home ownership in Israel has created something of a ‘two-tier’ economy, whereby those employed in the higher echelons of the country’s tech sector are in a minority of people able to afford to buy a home in the most desirable cities such as Tel Aviv. This has been exacerbated by a sharp increase in investor demand, countered by a sizeable shortage on the supply side that has driven up costs for importing construction materials.

The proposed measures form part of the Israeli government’s 2021-2022 draft budget, in which it hopes to make more land available for residential construction. It also wants to add 280,000 construction starts by 2025, a near 40 per cent average annual increase from 2020.

The government’s goal is to market land for 180,000 apartments over the next four years and have construction start on 280,000 units during this period. But these are ambitious targets that will be difficult to meet. In 2019, which was considered a peak year, work started on only 55,500 units – a far cry from the 70,000 a year the government is aiming for.

Other measures proposed by the government include:

  • Prohibiting homeowners in areas of peak housing demand from listing their homes on short-term rental platforms. The ban would likely apply to Tel Aviv, where around 13,000 apartments are listed for short-term rental, but not tourist destinations more on the periphery such as Eilat and Tiberias, in order to encourage owners to rent out their properties on the long-term rental market as an alternative to hotels. The measure would potentially force the closure of offices, clinics and law firms that base themselves in centrally-located rented apartments.
  • 180 million shekels [$57 million] would be allocated to raze-and-rebuild projects for older apartment buildings in less central areas of Israeli tourist destinations.
  • Israeli citizens would be encouraged to divide up their homes to create a separate unit, which could either be used by relatives or on a rental basis, and homeowners would be permitted to increase the size of their property by 45 square metres.
  • The government is intending to launch ‘Target Price’, a programme that would enable people to buy their first homes at a subsidised price and increase the supply of affordable housing, replacing the existing Mehir Lemishtaken programme. Around 65 per cent of all new apartments, excluding those in the highest-demand areas of the country, would be included in the programme.