Demand for apartments declines, construction starts fall by 15%

Is a decrease in prices on the horizon?

Today's data from the Central Bureau of Statistics suggests that while demand for new and second-hand apartments continues to steadily decline, the supply side is also at a standstill, with a significant drop in construction starts. In October, the number of apartment transactions fell by 54% compared to the same month last year, signaling a worrisome trend. 

The report from October 2022 to September 2023 shows that only 61,620 apartments began construction, a decrease of 14.4% compared to the previous year. Net construction starts, after deducting demolished apartments, amount to approximately 57,650 units, accounting for only 93.6% of the additional apartments to the economy.

It is important to note that these figures do not fully reflect the impact of the recent war, which has further slowed down the construction industry since October 7.

Which city had the biggest increase in new construction starts?

Geographically, about half of the new construction starts were in the Central and Tel Aviv districts, making up 24.3% and 22.9% respectively. The top five cities are Tel Aviv-Jaffa (5,907); Jerusalem (4,012); Bat Yam (2,548); Ashkelon (2,082); and Lod (1,999). Other notable cities with increased construction starts compared to the previous year include Lod, Nazareth, Ra'anana, Kiryat Gat, Haifa, Tel Aviv-Jaffa, and Ramat Hasharon.

The report also highlights cities that have experienced positive growth in construction starts after a decline in the previous year. These cities include Tiberias, Netivot, Herzliya, Afula, Or Yehuda, Nahariya, and Hadera.

As of September 2023, there were approximately 173,000 apartments under active construction, with half of them located in the Tel Aviv and Central districts, compared to 7.5% in the Haifa district.

Avi Zithoni, Chairman of the Association of Contractors and Builders in the Tel Aviv and central districts, commented on the report, expressing concern over the continuing decline in construction starts. He stressed the need for the government to take responsibility and aim for 80,000 to 100,000 starts per year in order to bridge the supply-demand gap.

Tzachi Sufrin, Vice Chairman of the Board of Directors and controlling owner of the Sufrin Group, acknowledged the decline in construction starts nationwide, but emphasized Tel Aviv's position as the leading city, anticipating even higher demand due to its distance from conflict zones.

He also called for faster actions from the government to address the challenges faced by the construction industry, including the shortage of workers.

Haim Feiglin, CEO of Tzemach Hamerman and Vice President of the Builders of the Land Association of Contractors, pointed out the surprising figures for construction starts in the third quarter, attributing them to projects initiated two to three years ago. He also highlighted the impact of stable interest rates on construction starts, suggesting that optimism among entrepreneurs and a potential decrease in interest rates could lead to a recovery in the market.

Rakfat Lahav, Vice President of Marketing and Sales at the Almog Group, emphasized the significance of construction starts in Ashkelon, despite the overall decrease compared to the previous year. He expressed confidence in the return of buyer demand after the Gaza fighting ceases, noting that sufficient supply in the market can help prevent sharp price increases.

The current state of the real estate market in Israel indicates a decline in both demand and supply. The government and industry stakeholders must work together to address the challenges faced by the construction sector and ensure a balanced market that meets the housing needs of the population.