Real estate prices climb in Tel Aviv region since 2000, but lag elsewhere

Real estate prices in Tel Aviv increased 71% between 2000 and 2011.

Real estate prices in Tel Aviv increased 71% between 2000 and 2011 after adjusting for inflation, while rises elsewhere were much lower - and there were even some decreases.

According to a report by the IDC Herzliya's Gazit Globe Real Estate Institute, a main reason was a lack of new homes planned for the Tel Aviv region relative to the population.

The report's findings will be presented tomorrow at an IDC conference called "How to burst the real estate bubble." The report was put together by Prof. Zvi Eckstein, dean of the IDC School of Economics; Dr. Efrat Tolkowsky, head of the Gazit Globe institute; and research assistant Nitzan Tzur.

"[Residential] planning is very thin in the center of the country in percentage terms compared to the outskirts, and this pushes prices up in the center," says Tolkowsky. "So when you want to talk about solving high housing prices, you mainly need to address the price increases in the center of the country - unless Israel wants high prices in the center as a way to push people into the periphery."

While there's little residential planning in the center, there's plenty of planned commercial and office space, say the researchers. The latter properties pay municipal tax rates five times the residential rate.

The price of a square meter of commercial real estate didn't change between 2000 and 2011. But commercial real estate now sells for 50% the price of residential real estate in the center. The shift stems from the surplus of commercial real estate, which the local authorities authorize via their role as planning authorities.

The researchers propose several ways to address the problem. These include massive residential construction in the center by forcing local authorities to approve existing plans, and changing the incentives inherent in municipal tax rates.

But Tolkowsky isn't sure the answer is to try to create new viable urban centers.

"The concentration of populations within mega-urban centers is a global phenomenon. In England, too, people are disturbed by the migration from the north and the excessive demand in London. Something about the way the global economy is structured is pulling in this direction, and the question is whether we want to fight this phenomenon, and if so, what alternative we're offering," says Tolkowsky.

"Over the last decade transportation has improved - the north and the south have gotten closer to the center and theoretically are supposed to have become better residential alternatives. I'm skeptical about the option of creating several attractive cities within Israel."

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