Israel’s housing crisis is not only about whether enough apartments are being built, but whether the country is building the kinds of apartments people actually need, a new Shoresh Institution study warned.
The study, published on Wednesday by Shoresh researcher Yael Mishly, argues that Israel’s housing market has a deeper problem than a simple shortage. More Israelis are living alone, as couples without children, or in smaller family units; more people are renting later in life; and much of the new construction is still made up of large apartments.
Since 2007, housing prices have risen by about five percent a year after inflation, while households’ real net income rose by only about two percent a year, according to the study. Apartment prices have been rising much faster than people’s ability to pay for them, leaving less income for everything else.
The study, titled “Beyond the Shortage: A Structural Perspective on Israel’s Housing Market”, says the shortage is real, but only part of the problem. Beneath it, Mishly wrote, is a deeper gap between the apartments Israel is building and the way Israelis actually live.
Since the early 1970s, Israel’s population grew by about 290%, while the number of households grew by about 350%. A household means one home unit: a person living alone, a couple, a family, or any group of people living together in one home.
Israelis increasingly living in smaller households
Israelis are increasingly living in smaller households. In the 1970s, the average Israeli household had 3.8 people. By 2022, that number had fallen to 3.2.
If household size had stayed the same as it was in the 1970s, Israel would have had about 2.5 million households in 2022. In reality, it had about 2.9 million. According to the study, that change alone created demand for nearly 400,000 additional homes.
The shift reflects major social changes: an aging population, people marrying later, more divorces, and more people living alone or as couples without children. At the beginning of the 2000s, one- and two-person households made up 41.4% of all households. By 2022, they made up 46.4%.
Construction has not caught up with that change. Between 1990 and 2023, the number of Israeli households grew by about 1.73 million, while construction began on about 1.61 million apartments. That left a gap of about 121,000 apartments.
The gap is even larger when looking at finished apartments rather than apartments that only began construction. By that measure, Israel was short by about 272,000 apartments.
But Shoresh’s central argument is that the problem is not only the number of apartments. It is also the type of apartments.
Four- and five-room apartments accounted for about 45% of housing starts in recent years. Smaller apartments, with one to three rooms, made up less than 20% of new construction, even after their share began to rise, mainly because of building in Tel Aviv.
That means many people who need smaller homes are left with few choices. Singles, young couples, divorced parents, small families, and older couples whose children have left home may be pushed into apartments that are larger and more expensive than they need.
Older homeowners who might want to move into smaller apartments often stay in large ones because there are not enough suitable options. That keeps some large apartments out of reach for families that do need them.
Renting has also changed. It is no longer only a temporary stage for young people before buying a home.
The share of Israeli households living in rental housing rose from 26.8% in 2007 to 32.4% in 2022. Among households headed by people aged 25 to 34, the share rose from 30% in 2001 to 49% in 2022. Among people aged 35 to 54, it rose from 15% to 32%. Among those aged 55 to 64, it rose from 11% to 18%.
Yet the rental market is still built as if renting is temporary. About 89% of rental apartments in Israel are owned by private landlords, while public bodies and large rental companies together make up less than 5% of the market. Most rental contracts are signed for only one year.
That leaves renters dependent on landlords each year to renew the lease, avoid sharp rent increases, and allow them to stay. For families, that can mean uncertainty over schools, neighborhoods, and daily life.
The study does not call for rent control. Instead, it argues that Israel needs a stronger long-term rental market, with professional landlords, longer leases, better management, and clearer protections for tenants.
The burden is especially heavy for low-income renters. More than half of households in the bottom income group spend over 40% of their disposable income on rent, placing Israel among the OECD countries with the highest rental burdens for poor households.
The crisis is not limited to the poor. The study cites the Alrov Affordability Index, which found that buying a typical four-room apartment in Israel’s 12 largest cities required a monthly mortgage payment of NIS 11,407 at the end of 2024, about half the net income of a middle-income household.
The study also points to Israel’s planning system as part of the problem. Changing land so that it can be used for housing can take seven to ten years or more, according to the study. Even after apartments are approved in plans, about half do not move on to the stage of applying for building permits.
Local authorities also have limited reason to encourage residential building. Homes usually bring municipalities less land tax income than businesses, while requiring more services.
The study argues that Israel needs to change the structure of the housing market, not only to speed up construction. The conclusion is that Israel’s housing crisis cannot be solved by another short-term subsidy, another construction push, or another focus on the number of housing starts alone.
Israel needs more apartments, but also smaller apartments, more stable rentals, better incentives for local authorities, and a planning system that reflects how Israelis actually live, the study concludes.