Homes prices in Israel are unquestionably among of the highest worldwide when
looking at price per square meter. In Israel, the middle class sector is
shrinking every day, creating huge polarization in the economy. What is so
alarming is that there is no correlation between the prices of a home/apartment
and average annual wages.
The average 4.5-5 room (3-4 bedroom) apartment,
say 120-150 sq.m., in Tel Aviv costs about $850,000. Typical loans are 75
percent of the total purchase price, provided your monthly mortgage payment is
no more than one-third of your gross monthly income. According to recent
statistics, the average Israeli family in Tel Aviv earns $52,038 (the median
family income in Israel is $47,136) so if you divide that over 12 months you get
$4,337 per month. If I were to take a third of this income, that means $1,446
per month is the maximum amount one could use to qualify for a bank
A mortgage of 75% of the purchase price is $637,000, that in
today’s market would bear interest at 4% per annum, due in 20 years, equates to
a monthly principal/interest payment of $3,900. This mortgage figure far exceeds
the amount a bank would approve based on a typical family income in Tel Aviv, so
the only way to make this work is to increase the down payment and take a much
This means that someone must come up with a down payment of
$600,000 (71% of the purchase price) to allow a typical family from Tel Aviv to
support a monthly mortgage of not more than $1,500/month. How in the world can
someone garner up such a huge amount of money when families are struggling so
hard, barely making ends meet each month even with two breadwinners? And really,
most Israeli families are over extended in bank credit because they do not have
enough income to pay the bills each month.
Basically, due to the
extremely high cost of living and lower salary levels in Israel, a typical
family is unable to set aside money because there is no money left over. So, the
$64,000 question is: who comes to the rescue to give the family/individual the
$600,000 down payment? As you see, the numbers don’t add up and make no
But really this is not the answer. In the US, the math works just
fine today where income is directly related to the mortgage and price of a home.
Of course when lending institutions were overzealous loans were made far in
excess of what people could afford. In many cases buyers didn’t even have to
give a down payment nor were they required to prove their earnings. Those
homeowners lost their homes through foreclosure and are now renters.
US lenders have revamped their lending practices where borrowers must
demonstrate historical/ current proven income to support the monthly mortgage.
US lenders have gone overboard and the conditions to obtain financing for a home
are so stringent that many cannot qualify, which is stifling the home sale
The Israeli government is now thinking of amending its housing
ordinance to include affordable housing. This is a step in the right direction.
But if you look at the US, they have been very progressive to provide affordable
housing for many years. In California, most cities require developers to set
aside 10%-25% of the total project for affordable housing as defined under
strict financial guidelines.
In such circumstances, developers are
granted higher density to offset this cost. If you look at HUD (Housing Urban
Development), they have been operating for years in this space providing
affordable housing programs to those that qualify both in renting and for-sale
Then there is also the Veterans Association to cover war vets.
This list goes on.
In certain cities in the US, like San Francisco and
New York, cities have opted for having a rent control ordinance. This in effect
controls the market rate rent when a unit goes to market and restricts the
annual rent increases for existing tenants based on a specific
Both cities implemented a rent control ordinance to keep rent
affordable and within the means of a renter.
In California, architects
have been very progressive to create efficiently designed first-time buyer
starter homes. In one project located in Sunnyvale, California, the developers,
W.E.B Sunnyvale Homes LP, whose general partners were myself and Kyung Yoon, a
prominent Korean businesswoman, were able to get city approval to increase the
zoning from 15/DUA to 35/DUA, classified as high density, by providing a unique,
well-needed housing project catered to first time home buyers.
overcame fierce objection from the neighboring condominium association and
endured a long approval public hearing process with city officials. The project
consisted of 45 attached townhomes, what we call in Israel
There were two floor plans: a oneand two-bedroom plan. The
onebedroom was 65 sq.m. and the two-bedroom 102 sq.m. The base footprint was 20’
x 20’ on a lot size of 60 sq.m. Each home came with its own private car
This project was conceived in December 1991. At that time, the
homes were priced from $149,000- $189,000. Keep in mind that the State of
California offered first-time buyers the opportunity to obtain below-market rate
loans for 90% of the purchase price.
Even with a 90% loan, the mortgage
payment was almost equal to rent for a new one- or two-bedroom apartment. This
housing project was in-fill and located on a major thoroughfare situated in back
of a carwash. In Israel, townhome plots are not less than 300 sq.m. – a far cry
to maximize the optimal usage of land. Tel Aviv’s answer to affordable housing
is to construct a 32-story tower and to sell a 4-room (3-bedroom), 100 sq.m.
apartment for close to $1 million! One other profound architect from San
Francisco who has won numerous awards for his unique designs for starter homes
is Donald MacDonald. In 1988, he came up with a starter townhome cottage
consisting of 30 sq.m. in San Francisco that cost $12,000 to build (excluding
land). The home had a base footprint of 17’ wide x 14’ deep.
MacDonald was developing these in-fill projects where he sold them for $115,000-
$120,000 and rented for $650- $800/month – far below the median home price. In
relative terms, rent at that time equaled the mortgage payment assuming a 75%
mortgage. Since this time, Mac- Donald and other architects/developers have
built numerous housing projects achieving similar results as
Basically, Israel needs to adopt these novel approaches to
create affordable/starter homes. Housing prices and rent are becoming more and
more difficult to attain for young couples. In Israel’s case, the government
owns over 90% of all land, so it is certainly within its control to find many
creative solutions to assist buyers and renters to make housing
There is no economic justification for the outlandish home
prices in Israel. Certainly in places like San Francisco and New York, homes
prices are terribly high – but earnings and income are far greater, and there is
a distinct correlation between the home price and income. In Israel, this is not
In 2005, median family income in Manhattan was $188,697, and
the average median home price in Q1 2013 was $1,100,000. In 2010, median family
income for San Francisco was $85,778, and the average price of a home for Q1
2013 was $833,750 – almost equal to Tel Aviv. The numbers in Israel make no
sense and do not support such insane price levels.
What makes Israelis so
special is their sense of commitment to family, assisting their newly wedded
children with the purchase of their first apartment by providing if not all the
money in cash or a hefty down payment (say for a new apartment in Tel Aviv
translates to $600,000). Home ownership in Israel is 69% compared to 65% in the
US only lends further support to this notion. Can you imagine if families didn’t
do this? What would happen to home prices? No doubt they would revert back to a
place that keeps these ratios in line, as they are in the US.The writer
lives in Israel and emigrated from San Francisco.