As more and more foreigners snap up prime real estate across the country, pushing the purchase prices of apartments out of the reach of many, an increasing number of young Israelis are finding they're also being priced out of the rental market.
"Israel's big cities, mainly Tel Aviv and Jerusalem, are now going through what is known as the Manhattan phenomenon," said Bernard Raskin, regional director of the real estate company Remax-Israel. "The demand for apartments in Tel Aviv is not new, but what is new are the prices that people are now asking for small one and two bedrooms. I have never seen a market like this before."
"Similarly," he added, "Jerusalem as the eternal capital for the Jewish people translates into real estate value and many Jews throughout the world have a magnetic pull to the city and dream of living there, despite the problems that exist."
For a young married couple like Baruch Hain and Adina Sacknovitz, currently renting a two-bedroom apartment in Jerusalem's Katamonim neighborhood, living in the capital may become a thing of the past.
"When we recently sat down with our landlord to renegotiate our rental contract for next year, he told us that he will be raising the monthly rent about 50 percent - from the current $600 to $900," said Hain. "I would understand if the landlord raised rent to $750, but not an increase of $300."
Hain and Sacknovitz, who live in a 70-square-meter apartment, informed the owner that they would not be extending the contract.
"We will not pay that kind of money. I've spoken with some people who think the landlord will get his asking price, and others who think he is asking too much. I am really curious to see if he will get someone to pay $900," said Hain.
Hanan Schlesinger, CEO of the real estate company Anglo-Saxon, points to a number of factors that have converged to cause the current explosion of rental prices.
"The economic situation in the country has improved and now many more young people are renting apartments in the city as opposed to living at home. Many foreign businesspeople are renting here as they are often in the country for business. And over the last few years the building market has stagnated, so there have not been enough new apartment buildings built. These factors have combined to lead to serious stress on the rental market," said Schlesinger.
The government's practice of selling land at discount to developers on the condition that they agree to rent out the apartments for a minimum number of years probably would not improve the current apartment shortage, he said.
Rebecca Strapp, a recent immigrant and master's degree student at the Hebrew University, told The Jerusalem Post she could not believe the prices of dwellings she encountered as she searched for a new apartment.
"I was paying a reasonable but hefty sum for my apartment in the German Colony neighborhood of Jerusalem. However, after being informed by my landlords that they will be raising the rent $400 a month, an outrageous sum, I began to look for a different apartment," she said.
According to Strapp, a fifth floor two-and-a-half bedroom walk-up in a delapidated building in Jerusalem's Baka neighborhood was on the market for $950 a month. "The asking price was crazy," she said, "but the current tenants advertised it on a few Web sites and within one day, they had 12 people who wanted it. The way things are right now, apartments that we thought were expensive are now great deals, and the only way to find a decently priced apartment is to be lucky enough to have a landlord who has no clue about the current market trend."
As for those awaiting the arrival of cheaper prices, both Raskin and Schlesinger said it wasn't going to happen.
"Many people who have been watching the real estate market say that these prices aren't realistic, but in truth, they are, since over the last number of years prices have stagnated or gone down. Now they are up and it looks like they will stay this way," said Raskin.
Prices in places such as Modi'in have also jumped considerably in the last six months.
"The problem for people looking to rent in Modi'in is that almost everything in the city is for purchase and not rental," said Daniel Damboritz, a transplanted Jerusalemite now living in the city.
"With the arrival of the train [connecting Modi'in to Tel Aviv, and eventually to the capital], the city will become an even more attractive alternative to Jerusalem and Tel Aviv, and [it] will drive both purchase and rental prices even higher. As it is, prices for four-bedroom apartments, which six months ago were going for $600, are now being advertised for $950," he said.
Anglo-Saxon's Schlesinger had this to say: "My tip to renters is to sign a contract based on the shekel price, because it is hard to predict what will happen to the dollar rate. Because most people earn a shekel salary, it is recommended that all parties implement contracts in shekels, even if they bind the contract to a predetermined, minimum dollar rate for the sake of calculation."
He also recommended renters update the price when the contract is renewed at the end of the year.
Reflecting the importance of tying contracts to the Israeli currency, Levi Itzhak, editor of the monthly Property Prices magazine, has begun listing apartment prices in shekels instead of US dollars, as had been the norm over recent years. The property price lists include second-hand apartments for sale and for rent.
Bank of Israel Governor Stanley Fischer has been pushing for the move to shekel pricing and last month met with Finance Ministry Director-General Yarom Ariav and representatives of various unions in an effort to advance the process.