Dramatic decrease in land supply: housing prices will rise in the long term

The situation in the Israel Land Authority's (ILA) tender market remains particularly poor. Since the beginning of the year, the volume of marketing has decreased. Over the last three weeks, no results of new tenders have been published, indicating a low volume of activity. A number of tenders were released to the public in early May, but since then, the number of closed tenders stands at zero.

The Authority is failing to market sufficient land for high-density construction, and its tenders are based primarily on the 'Target Price' (Mehir Matara) program—lotteries for subsidized housing that do not address the needs of the majority of the public. The recent decision to allocate 75% of discounted apartments to reservists leaves the housing-deprived public who do not serve in the reserves without a real opportunity to purchase property at reasonable prices. The delay in issuing additional tenders for high-density construction limits supply and may cause further price increases.

The reason prices in Israel remain high is the persistent undersupply. Despite an increase in completed construction data, the Contractors Association often claims that these figures still fail to keep pace with demand. As long as high-density construction data remains low, even average demand will not lower prices. The strategic housing plan requires the production of about 65,000 apartments this year, which is higher than the average of 55,000–60,000 completed units seen in recent years.

Out of the 12 tenders held on August 5, only 3 were intended for high-density construction for the free market: land for about 1,000 apartments in Ofakim, 150 in Safed, and over 560 in Nof HaGalil. The Nof HaGalil tender failed, while the large tender in Ofakim was won by Megido and Y.H. Damri. Yesterday, another wave of seven tenders closed, including 4 'Amidar' tenders, one for industry, one for mining, and only one for the construction of 258 apartments in Ness Ziona.

On August 31, the state will launch a new series of at least 15 tenders. However, it appears that only a minority of these will address the private market. The largest tender is for the construction of about 1,000 housing units for the Haredi sector in Beitar Illit, while the rest focus on the rental market or low-rise detached housing.

This decline in tenders occurs against the backdrop of the struggle for the position of ILA director—the same authority that Finance Minister Bezalel Smotrich previously called to close and rebuild. There is still no permanent director for the authority. While Smotrich is pushing to appoint Yehuda Eliyahu, the search committee has begun discussions and is expected to decide soon, as it considers several other candidates for the position.