Like purchase costs, rent is now out of reach for many Jerusalemites.
By ILANA TEITELBAUMfor rent in jlem (photo credit: Ariel Jerozolimski)
Jerusalem neighborhoods such as Katamon and Kiryat Shmuel have often been compared to Manhattan's Upper West Side, for both their demography and their prices. In recent years, not only has the comparison become increasingly apt, but it appears to be turning into an uncomfortable reality for the rest of the city as well.
In the past two years, rental prices in many parts of the capital have skyrocketed, with a hefty price tag attached to just about anything resembling accommodation in the holy city. Even neighborhoods that many people had considered undesirable in the past, like the Katamonim and Kiryat Hayovel, are now hot spots for renters and buyers alike - and landlords are taking notice, in some cases raising rents by as much as $200 in two years.
The rise in rental costs is linked with a variety of factors. Many people blame the fact that the real estate market in Israel is for the most part dependent on dollar prices, and that the drop in the value of the dollar has caused landlords to scramble to make up the difference by raising prices.
But there are other factors as well. One of the most significant is that purchase prices have jumped even more dramatically than rental prices, especially in areas like Rehavia, Katamon, Talbiyeh and the German Colony. The cause of this jump is largely attributable to the buying power of purchasers from overseas, whose stronger currency enables them to pay prices far beyond the reach of most Israelis. A four-room apartment in Katamon, for example, now costs as much as $800,000.
Many of the apartments acquired by overseas buyers are either second homes or investments, and as a result are empty for most of the year. Owners are reluctant to rent them out because they plan on occupying the apartments several times a year. Alternatively, they can charge as much as $130 a night for short-term holiday rentals.
As a result, "There's more demand than supply," says Ariyel Maresky of Home Run Properties.
"There's only a certain number of apartments in Jerusalem and a lot of these apartments are being sold to people from overseas who won't rent them out because they want to come during the holidays."
A low rental return is another reason that buyers from overseas leave their apartments empty, says Warren Zauer of Tefah.com. "There's not enough encouragement for people to make the place available for rent," he explains. "Clients come from overseas and ask what sort of return on investment they can get. I tell them 3 to 4 percent and it's a turnoff."
This is in contrast to other countries, where real estate investors charge renters 5% of the purchase price. The reason for the disparity is simple: Purchase prices have been raised because overseas buyers can afford them, but Israeli renters, who earn in shekels, can't afford to pay more than 4% of those prices.
Additionally, "Since it's hard to buy, more people are interested in renting and that's also driving up rental prices," explains realtor Meira Zyroff.
Another element in the mix is the high demand in certain areas, especially religious communities. "All of Jerusalem is becoming more religious, which makes the prices go up," says Zyroff.
"Religious people don't travel on Shabbat, so they need to be close to their synagogues and families."
Consequently, Bayit Vagan and Har Nof are exceptionally costly neighborhoods as they are very popular among haredim.
Other religious neighborhoods like Kiryat Moshe and Ma'alot Dafna are expensive because they are in high demand by young religious couples who want to live near the husband's yeshiva. Rent for a one-bedroom apartment in Kiryat Moshe, for example, runs as much as $650 per month, while rent for a two- to three-bedroom apartment in Ma'alot Dafna can range between $1,200 and $1,500 per month.
According to Alyssa Friedland of RE/MAX Capital, the high cost of living in popular religious communities leads to an increased number of people renting or buying in the less expensive outskirts of those communities. This in turn leads to a price increase in the hitherto inexpensive areas.
For example, people who want to be part of the popular modern Orthodox community of Baka but can't afford its real estate are moving instead to Arnona, driving up prices there, she says.
A similar trend can be seen in Ramot Eshkol, an Anglo haredi community that boasts million-dollar properties on Rehov Ramat Hagolan, and French Hill, a cheaper neighborhood within walking distance. French Hill real-estate prices are also on the rise, however, because Hebrew University students are opting to rent apartments there rather than live in the costly and often congested dormitories on the Mount Scopus campus.
Another example of this phenomenon is Katamon and the Katamonim, in spite of the high crime rates that still plague the latter neighborhood.
Friedland predicts that the gentrification of the Katamonim will take place more gradually than it has in French Hill and Arnona, but that eventually it will happen.
Rents are also rising in the city center, an area that due to terrorism and overall lack of community was once relatively inexpensive.
According to real estate agents, the reason for rents going up in the city center is twofold. One reason is the increased inability of many people to afford the rents in Katamon and Rehavia. The other is the recently instated government subsidy for students who live in the city center, and which has led to an increased demand among students for apartments there (see box).
The irony is that students often end up paying more than they would have anyway, as landlords take advantage of the increased demand and raise rents beyond the amount of the subsidy, sometimes by as much as double. "It looks like the subsidies are all going to the landlords," says Moshe Kornfeld of Tefah.com.
ASIDE FROM students, many Jerusalem renters are singles who share apartments, but also families and young couples who can't afford to buy. People who want to live in a specific location may choose to rent instead of buy because the difference in purchase prices between upscale neighborhoods and other neighborhoods is 10 times more, while rental prices don't vary as much, explains Zyroff.
Take Rachel, for example, a single mother who has been renting a house in the German Colony for the past two years for $1,500 per month. "I do think about buying, but a similar property would be over a million dollars to buy, so it's cheaper to rent," she says. "Carrying a mortgage on this place would be infinitely more expensive."
Sarah Eiferman of Eiferman Properties Inc. confirms that singles and students are not the only people renting in Jerusalem. "Because of school systems for kids, families may rent in a place where they can't afford to buy," she says.
"We've considered buying, but any mortgage would be double the rent we're paying now," says Rena London, who lives with her husband and child in Givat Mordechai. They chose to live in the neighborhood in large part because of its proximity to the Jerusalem College of Technology (Machon Lev), where her husband is studying.
"Once we finish school, we won't have to stay in Jerusalem," says London, whose landlord has raised their rent from $480 to $550 per month in the past few years. "It's really cheaper not to live in Jerusalem."
While families may consider leaving Jerusalem for cheaper and greener pastures, many singles are still willing to pay the price of living in the city. Since making aliya five years ago, Ezra Butler, 26, has been renting in Katamon despite the price hikes.
"I've stayed here partly because of inertia and partly because my synagogue's here, and all the people I know and have become close to live here," says Butler. "It's become a major social attraction."
Jessica, 28, a native Jerusalemite who rents an apartment in Kiryat Shmuel with other singles, agrees. "I don't want to give up on a social life," she says, when asked if she would leave Jerusalem. "I might as well live with my parents in that case. When you get married and move to a suburb you pay for diapers; we pay for apartments. Everyone has expenses."
The high demand for rental apartments is well known to landlords, some of whom have been staging "bidding wars" to get the highest possible price.
"People are invited at the same time by the landlord to view the apartment," explains Koby Cooper, who is also renting in Kiryat Shmuel.
Many renters are having trouble finding and affording apartments as a result of an overall lack of availability, he says. "If there's a lot of interest, the landlord will announce that he's decided to increase the rent."
A bidding war then ensues, leaving many potential renters more discouraged than ever.
"Today you don't even go to see the place before you show the client... If you wait, the place is gone already," says realtor David Lepon.
Where is it still affordable to rent in Jerusalem? According to Zyroff, Pisgat Ze'ev is a favorite, as the rent there is lower than it is in more central locations.
Other neighborhoods that are still relatively inexpensive and central are Katamon Het and Tet, Kiryat Hayovel and Gilo. Rent for apartments in San Simon can run as low as $650 for three rooms, though they are hard to find and are snapped up immediately, says Zyroff.
Despite the challenges of the market, there is still hope for people who want to live in Jerusalem and can't afford the purchase prices, says Eiferman. "People shouldn't get discouraged about looking for apartments to rent," she says.
"There are apartments out there that are reasonable... There are people who have apartments as inheritances... Not everyone is asking for astronomical figures."
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