The Ministry of Housing and Construction is bringing order to the rental market in Israel, for the first time in many years: "Israel Today" received an action plan for reforms in the chaotic rental market, which includes a series of measures, some of which can be implemented immediately and some of which require legislative amendments and the approval of the legal advisor to the government due to the election period.
Yesterday, the ministry held an internal seminar on the subject, during which the action plan was presented that claims to bring order to the market, which is characterized by an almost total lack of state supervision.
The discussions were attended by the representative of the OECD, deputy to the ombudsman, the deputy in charge of the budget department at the Treasury, the deputy accountant general, the chairman of the finance committee and others.
Among other things, the ministry proposes to establish a unit for supervision and regulation of the private rental market, to publish recommended rents and a standard rental contract recommended for the private market, and to provide incentives to increase housing for long-term rentals in the form of tax benefits and more.
Will the Ministry of Housing and Construction manage to bring order to the apartment rental market?, Photo: Yehoshua Yosef
"Wild West" in the rental market
About a quarter of households in Israel currently live in private rentals, more than 600 thousand households in Israel, and this is a high rate compared internationally (about 17% on average in the OECD).
The rental market, which generates approximately 35 billion shekels per year, has a significant impact on the economic situation of households, but paradoxically is not managed by almost any government agency.
The Fair Rent Law, which was amended in 2017 and is not enforced in practice, has effectively become a "dead letter", and today quite a few tenants are forced to deal alone with various demands of the landlords, when the balance of power is always in favor of the landlords.
Quite a few tenants today describe the rental market as a "wild west", when the landlords can demand almost anything they want in the contract - from vacating the apartment for a whole week every year to bringing in a cleaner twice a week, not to mention raising the rent by up to tens of percent.
In order to change the current situation and implement some reforms in the private rental market, the Ministry of Housing and Construction first of all wants to become a regulator in the market, by determining the powers of supervision and control that will be granted to it on the subject, through a six-part action plan.
First, the establishment of a unit for the supervision and regulation of the private rental market that will deal with verifying compliance with the requirements of the law, examining changes required in the law over time and promoting administrative enforcement tools in favor of compliance with the requirements of the law.
Second, creating a standard for directing the rental market, partly through the publication of a standard rental contract recommended for the private market.
The third part is the establishment of a digital platform for evaluating recommended rents, which will be based, among other things, on periodic survey data, an economic model, appraiser tests and the publication of annual data.
At the same time, a rental vs. purchase calculator will be built, and collaborations will be made with the local government to build a database for the field.
The sixth and last part includes incentives to increase the scope of long-term rental housing in the private market.
That is, promoting incentives for landlords who will work to sign a long-term contract and link the rent to the index only, to have a "safe rent".
Among the incentives offered by the ministry: a reduction in appreciation tax for long-term apartment renters, photo: Yehoshua Yosef
Among the incentives offered by the office: a reduction or exemption from appreciation tax for long-term apartment renters, an increase in the tax rate required for reporting in the case of a safe rental, deduction of interest on the mortgage or deduction of depreciation and other expenses on the apartment.
Expectations versus reality
What the plan does not include - and we have verified this - is rent control, with the exception of the cases of encouraging long-term rentals in which the state will act to limit the increase in rent to the level of the index, while on the other hand it will grant tax benefits to landlords.
In Ireland, for example, the state's attempts to control rent together with the heavy taxation of investors led to a completely undesirable result - a severe shortage of apartments for rent.
The main goal is to regulate the rental market in favor of a more stable and more accessible long-term housing solution - probably with the understanding that housing prices will not drop anytime soon.
Another principle that guides the ministry is the results of the survey it conducted, according to which 20% of citizens would give up buying an apartment if they had the option of living in a long-term rental.
The rental prices and the purchase of the apartments in Aliya (archive), photo: Yehoshua Yosef
At the same time as the measures planned for the private rental market mentioned here, the Ministry of Housing and Construction plans to expand the institutional rental market by increasing the construction of housing units for long-term rental.
This is through the government company for long-term rental "Dirah Lehshakhir", in strengthening institutional housing in ventures such as housing for rent on "Homa" land (land intended for public buildings), and in encouraging private ventures (REIT funds) to build housing units for long-term training.
The institutional rental market has faltered in recent years, and the number of long-term rental apartments with state subsidies is few and negligible.
As of today, eight years after the establishment of "apartment for rent", only 2,188 housing units have been occupied and another 6,670 are in marketing processes.
The firm's goal is to reach the marketing of 10,000 housing units by the end of the year.
According to Aviad Friedman, CEO of the Ministry of Housing and Construction, "We need to allow the developer to build in a way that is adapted to the world of renting, and we must put emphasis in Arab society and the ultra-orthodox sector on long-term renting as well."
Friedman added that "safe rent" also has a solution for public housing tenants. This year, 10,000 units were added, immigrants from Ukraine arrived, and the rental market is tight. We need to create an incentive for the private market, so that a person would have an interest in renting for 5 years. If they told me, 'Give Property, forget about it for a few years and you will get money' - I would do it."
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