A luxury we can't afford

Some see absentee apartment owners as the perfect residents, while others regard them as responsible for rocketing property prices.

311_J'lem Building project (photo credit: Paul Widen)
311_J'lem Building project
(photo credit: Paul Widen)
When one stands at the top of Rehov Bezalel and looks to the west, the luxury apartment project Mishkenot Ha’uma can be seen towering on the hill about a kilometer away. Only one two-story house remains of the neighborhood that once stood there, and this house is located right in front of the luxury building project, like a silent cry of defiance against the changing face of Jerusalem.
Nehemia Nehemia has been living in this house for 53 years. These days he is a harried man, counting down until his court date when he will be handed a modest settlement and an eviction order. He expects the house to be demolished within days after that, but he is still not sure where he will move with his wife and four children when the bulldozers arrive.
“I won’t be living there,” he says, nodding toward the construction site without looking at it. “That’s for hutznikim [outsiders].”
Approximately 9,000 apartments in Jerusalem are vacant most of the year. Their owners live overseas and typically leave the apartments dark and empty until they come for an occasional holiday visit. The Jerusalem Municipality calls them “the perfect residents,” since they pay taxes without requiring any services. But the growing trend of buying property in the capital without the intention of settling here is devastating for the fabric of life in the city, which many residents are leaving for lack of affordable housing.
Mishkenot Ha’uma is one of the biggest luxury apartment complexes being built in Jerusalem, under the auspices of the B. Yair Building Corporation, one of Israel’s largest real estate developers. It is located in the National Precinct, sandwiched between Nahlaot, Sacher Park, The Jerusalem International Convention Center (Binyenei Ha’uma) and the Supreme Court. The building project has two phases, with the 300 units of the first phase nearing completion. The second phase, with an additional 400 units, is slated to start within two years.
With so many luxury apartment projects mushrooming in the city, one might be forgiven for thinking that the market must be reaching a saturation point. Nadav Lisovsky, vice president for marketing at B. Yair Building Corporation, is quick to correct that misconception.
“There is actually a shortage of luxury apartments in Jerusalem. If you want to invest in a high-end piece of property in the city, you have very few places to go.”
Almost all of the 300 units in the first phase of the project have already been sold. Lisovsky mentions some high-profile media personalities among the investors, as well as politicians and businesspeople.
He is not expecting Mishkenot Ha’uma to become the next luxury ghost complex in town but rather a new neighborhood where people live all year. A significant effort is being made to create the infrastructure needed for this, with stores, restaurants and cafés. Consequently, Lisovsky does not consider the problem of empty apartments as relevant to this specific building project. “We expect only 15 to 18 percent of the apartments to be used mainly for the holidays,” he says.
Other luxury apartment developers have no problem acknowledging that a majority of the people investing in their projects are foreigners. Yoram Shechter is one of the managers of Jerusalem of Gold, a luxurious project being developed on Rehov Rabbi Akiva in downtown Jerusalem.
“People are coming slowly,” he explains. “They come for a holiday, then buy an apartment, then come for more holidays. Then their kids come here to study, and eventually they make aliya. Instead of seeing this process as a good thing, people complain,” says Shechter.
DAVID AND Suri Kufeld are in their 50s and live on Long Island in New York. Both of them grew up in Zionist homes with a strong sense of commitment to Israel. When their two children were growing up, the family would frequently travel to Israel for the holidays. During the early years of the second intifada, the couple felt that an appropriate response to the violence would be to invest in Israel. Subsequently, they bought an apartment in Jerusalem in 2002.
David describes himself as a semi-absentee landlord. His daughter has periodically been staying in the apartment during her university studies, while David and Suri come to visit an average of three times a year.
“For us it’s not just a vacation home, it’s the anchor that will one day bring us to Israel,” he explains over the phone from his Long Island residence. “Our intent is to one day make aliya, to make the transition.”
He admits that the process has been drawn out, for which he suffers the typical bouts of “galut [Diaspora] guilt,” but several personal and practical issues have prevented the Kufelds from making the final transition. In addition to that, a number of members of his community on Long Island have also invested in real estate in Jerusalem.
“People are guided by a sense of idealism, but I guess buying property in Jerusalem has become a kind of Band-Aid for aliya,” he says regretfully. “It’s easier to do this. It’s affordable, and modern travel makes it easily accessible. At the same time, the Orthodox rabbinate in the US is not pushing aliya. Maybe they don’t want to upset their congregants, but there is no sense of urgency, no feeling that aliya is something we have to do now.”
Kufeld does not deny the potential negative effects of empty apartments but sees it as a relative thing. “In our building there are 12 apartments, and aside from our apartment, only one other is owned by hutznikim. It’s obviously not good when entire neighborhoods are empty, but in our case I think that the positive effects of our investment outweigh the negative effects.”
His concern is greater when it comes to the luxury apartment projects that are burgeoning all over the city, a concern he shares with many of the city’s permanent residents.
Like most overseas apartment owners, Kufeld is reluctant to rent out his apartment to strangers when he is not using it. “It’s a practical issue. Hypothetically, sure, it’s a great idea that empty apartments would be used, but what about when I come to visit? I’m supposed to just kick them out? And what if something breaks in the apartment?”
IN DECEMBER 2009, the Kufelds and other overseas owners of property in Jerusalem received a letter from Mayor Nir Barkat encouraging them to rent out their apartments during the times that they would otherwise be empty. The demand for apartment rentals is very high, which is hiking up the prices and making it harder for students and young families to afford to live in the city.
“The mayor is offering a win-win solution,” explains Amit Poni, director of Urban Renewal and Affordable Housing at the Jerusalem Development Agency (JDA), the joint municipal and state authority responsible for finding solutions to the challenges that are facing the capital. “Even if only 5% of the empty apartments are rented out, we are talking about over 400 apartments in central Jerusalem that would be available for students and young families.”
Poni describes the role of the JDA as a regulator trying to find a balance between the right of every Jew to buy property in Jerusalem on one hand, and the interests of Jerusalem’s permanent residents on the other. A city council resolution in June requires all new building projects in the areas of Jerusalem that were built before 1948, from the German Colony in the south to the Bukharan Quarter in the north, to take into account the needs of ordinary Jerusalemites.
“If the developer wants to add more than 2,000 sq.m., he will need to dedicate 20% from the supplement to affordable housing for rent,” he says.
Through this ordinance, combined with a dialogue with overseas investors, the mayor hopes that this balance will be found in the long term.
“In one sense, they are the best residents of the city,” says Poni about the overseas owners. “They pay taxes without requiring any services. But at the same time, the increase of empty apartments is devastating for life in the city, leading to empty streets and entire ghost complexes where no one lives. Cities are built on diversity. This message is sinking in slowly, and we are noticing that overseas owners are becoming more open to renting out their apartments.”
While the message might be sinking in slowly among overseas owners, it is not sinking in at all among the permanent residents of Jerusalem. Over the lunch special at Sushiyah on Rehov Trumpeldor (Hagidem), a discussion erupts as one of the patrons flips through a local newspaper.
“They say that Barkat is a business gaon [genius]. I don’t see it. Who is supposed to live in this city, only millionaires like him?” says an irritated, middle-aged Russian man.
The 20-something art student next to him agrees and points across the street at a recently completed building project. “Do you see that monstrosity? Five floors. Two apartments. The owners are here once a year. Why can’t they build something for the students that study right here?”
But that which is a cause of constant frustration and irritation for Jerusalem’s permanent residents has quickly been seized as a business opportunity by others. David Friedland, founder of Smart Hospitality & Management, is one of them. He manages 40 high-end apartments in Jerusalem and Tel Aviv that are available as short-term rentals for tourists and businesspeople. For the price of a hotel room or even less, a family can rent an entire apartment.
“People are reluctant to rent out their apartments long term, since they want to be able to enjoy their investment when they come to visit. By renting them out short term instead, this problem is eliminated, while also offering the owners a 33% higher revenue than long-term rental.”
Friedland had many years of experience in the hospitality business in New York. He first experienced the business model he is offering when he and a few colleagues were in Paris during a particularly busy time of year and there were no hotel rooms available. Reluctantly, they looked up short-term rentals, and found that the experience offered them much greater satisfaction than a hotel.
“I felt like I was a part of the city,” says Friedland. “I felt like a Parisian! Hotels are detached from reality; there is something so artificial about them. When you live in an apartment, you step out of the front door and you are in the city. You see people on their way to work, you take a walk to the corner store and pick up something for breakfast. It’s real, and you feel like you’re a part of it.”
THE LOGISTICAL challenge of managing short-term rentals might be possible to sort out, but the challenge that the city is facing is obviously much greater than that. While Jerusalem is becoming better at welcoming visitors, this is increasingly done at the expense of its residents.
Merav Cohen is one of the founders of Hitorerut B’yerushalayim, a grassroots movement that was born in May 2008, in part as a response to the problems that luxury building projects create for Jerusalem residents. Scarcity of affordable housing was forcing young people to leave in droves, which had a negative impact on the social and cultural life in the city.
Hitorerut has two representatives on the city council since the municipal elections in 2008, but the work of the movement takes many forms, and various strategies have been employed to make affordable housing available in Jerusalem.
“In Rehavia, for example, we studied the urban plan and petitioned the local and district councils to change certain regulations, so that new apartments cannot exceed 80 sq.m.,” says Cohen. This makes the area less attractive for luxury apartments, which typically are much larger than that.
However creative Hitorerut’s solutions may be, they do not solve the root of the problem. Cohen believes that it lies in the fact that the Israel Lands Administration awards tenders to the highest bidder, which means that affordable housing projects always will draw the shortest straw.
“It is really not in the mayor’s hands but in the government’s. It’s about legislation,” she says.
While Jerusalemites wait for that legislation to be passed, Nehemia is trying to prepare himself for defeat. The Mishkenot Ha’uma building project has already started to eat away parts of the house that he has known as his home for half a century, offering a powerful explanation for the general state of Jerusalem in the 21st century.