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New study: Housing prices are expected to continue to rise by about 6% until the end of 2025

Photo of Bauhaus Museum in Tel Aviv about Israeli architecture. This is a photo of a place that is recognized as a heritage site by the Council for Conservation of Heritage Sites in Israel.
A study conducted by researchers at the Aharon Institute for Economic Policy reveals that 40% of the cost of living in Israel stems from housing costs. Among the main factors for this is a war of iron swords that exacerbated the supply problem, as well as traffic jams and traffic congestion.

A new study shows that 40% of the cost of living in Israel is due to the high cost of housing, and according to expectations, there will be an additional increase of about 6% in apartment prices by the end of 2025. This forecast is based on the number of building permits granted until 2023. The study, which was conducted on strategies to lower the cost of living in the area Housing and Transportation, emphasizes that the increase in apartment prices is directly related to the war of iron swords, which resulted in a labor shortage in the construction industry, and the housing supply problem only got worse.

The study, prepared for the annual conference of the Aharon Institute for Economic Policy at the Tiomkin School of Economics at Reichman University, will be presented on Wednesday by researchers Sani Ziv, an expert in urban economics and macroeconomic processes in the Israeli economy, and Oren Shapir, an expert in building microeconomic and macroeconomic models based on statistics and econometrics.

The researchers point out that the high apartment prices are a major part of the cost of living in Israel, which affects the standard of living and the quality of life and increases inequality. According to the study, Israel is the most expensive country by 38% compared to the OECD countries, by 10% compared to the USA and by 85% compared to Cyprus for the same consumption basket. In addition, real apartment prices have increased by 4.8% per year since 2012, Which puts the real price of an apartment about 28% above the multi-year trend of the increase in GDP per capita which increases by 2%.

Sani Ziv points out that “there is an increasing difficulty in purchasing an apartment for households in Israel because there is a gap between apartment prices and the average salary.” The gap is due to the increase in the number of households which was 132 thousand higher than the increase in housing units built between 2012-2023.

In addition to housing prices, the study highlights the impact of long road travel times on the cost of living. “The travel times in Israel are twice the travel times in the world’s leading metropolises, they increase the cost of housing, especially in the center, and lead to the construction of housing far from employment centers,” say Ziv and Shapir. According to the study, the traffic jams add another 6% to the cost of living.

The researchers propose two main strategies for economic policy to deal with the cost of living and lead to an increase in GDP of about NIS 150 billion, an increase of about 5% in GDP per worker in 2040, and a decrease of 15-20% in apartment prices:

Increasing the housing supply: increasing the number of building permits to 100 thousand per year, beyond the expected increase in the number of households. Increasing the number of apartments ready for occupancy from 63 thousand housing units in 2026 to about 100 thousand housing units in 10 years. Focusing on urban renewal by increasing the weight of building permits within urban renewal to about 20%, and expanding planning certainty in evacuation and construction complexes in at least 50 cities.
Improving public transportation: reducing public transportation travel times by 50% and increasing the amount of public transportation trips from 20% to 50%. Also, integrated planning of housing and public transportation in the residential areas, including the development of public transportation infrastructure such as the metro, light rail lines and an efficient bus system.
In conclusion, the researchers note that adapting transportation to construction goals, increasing the density of construction around public transportation axes and public transportation stations, along with the creation of mixed complexes that include employment, commerce, and leisure centers – can lead to a reduction in the gap in apartment prices between the center and the periphery.

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