Demand down and supply up as apartment rents fall

Many apartment owners who rented out short-term before the war are turning them into regular rental apartments. At the same time, delays in the opening of the academic year have contributed to increasing supply and decreasing demand for apartments for rent. Owners of apartments without a secure room are forced to compromise more on the price, due to lower demand. Consequently WeCheck, which provides financial solutions for landlords and tenants, reports that since the outbreak of the war there has been an increase of about 50% in the supply of apartments available for rent, and a fall of about 1.5% in rents.

WeCheck’s figures, which track all the apartment for rent websites, reveals that the supply of apartments for rent in November 2023 was 50% higher than in November 2022 and 25% higher than October 2023. “These are very high and unusual numbers for November,” says the company’s survey. In normal years, November sees a decrease in the number of apartments for rent, due to the opening of the academic year and the peak market period, which ends before the holidays.

WeCheck CEO Rami Ronen says, “It’s not that all the problems of the rental market have been solved, and suddenly a new supply is here. Absolutely not. This is a certain situation, and I guess if we talk in six months we will see an opposite mirror image. Israel has not found a systematic solution to secure the housing market, either for buying or for rent.”

Quadruple the number of small apartments

What happened in November that increased the supply? Ronen says, “The first wave is related to personal security. In our estimation, only about a third of the rented apartments have a secure room. We encountered situations where tenants in demand areas preferred to leave apartments without a secure room, and sublet them. In some cases this is done with the consent of the landlords.

“The second wave is a significant increase in the 1-2 room apartments that are rented. These are apartments, which in most cases are rented out for single nights on websites like Airbnb. In November 2022, about 500 such apartments were offered for rent and in November 2023 the number jumped to 2,000 apartments. A four-fold increase is dramatic. People who own apartments for short-term rent realize that in the coming year the chance of renting them out to tourists is very small, and they prefer to rent the apartment for at least a year, to minimize losses.”

While the supply side has risen, demand has fallen. The first reason is the seasonality in the rental market: the period between Sukkot and Passover sees a drop in demand even in regular times. During the war, when many businesses were closed and hundreds of thousands were called up to army reserve duty, there was a sharper drop than usual in the demand for rental accommodation.

In addition, in the conflict zones in the north and south, demand to rent an apartment has plunged completely, similar to the drop in demand to buy apartments there.

Beyond that, during this period academic studies were supposed to have begun in universities and colleges. Instead, the start of the academic year has been delayed, and this is also reflected in the rental market, especially in the university cities – Tel Aviv, Haifa, Beersheva and Jerusalem. Landlords suddenly find themselves with empty properties and loss of rent.

“Students have not rented apartments, because a significant number of them are in the reserves while others aren’t studying, and knowing their rental pattern, they always show up at the last minute,” says Ronen. “All of this adds a big supply of apartments in university cities, where the future is uncertain, because it is not at all clear what the academic year will look like. The first semester may be shortened, and many students may decide to stay at their parents’ house and save on rent. That is, there is a significant range of uncertainty here, in which apartment owners have to live and conduct themselves.”

The bottom line, the increase in supply and the decrease in demand has affected prices, WeCheck reports. Prices fell an average 1.3% from October 2023 and 2.2% from November 2022. In any case, it should be taken into account that Tel Aviv, where over 50% of residents rent apartments, skews the average downward and it is still too early to talk about a distinct trend in all cities.

A fall in supply in Beersheva

Examining the cities themselves, supply of apartments to rent in Tel Aviv jumped 160% in November 2023 to 4,000 apartments, half of which are three and four room apartments. The overall average rent paid these days in Tel Aviv is about NIS 6,700, and for the popular three and four room apartments NIS 7,230. In Netanya, which is not subject to rocket attacks, the supply of apartments has doubled compared with last year, to 1,300 apartments, of which 25% are three and four room apartments.

At the same time, and not surprisingly, in cities coming under constant bombardment, there has been a significant increase in supply. In Rishon Lezion, Ashdod, Holon and Ashkelon, the number of apartments for rent in November rose by 40-50% compared with November 2022. Specifically in Beersheva there were significant decreases in the supply of apartments, although rents remained stable. Ronen says, “The uncertainty is high, but it is clear that prices will not rise again as long as the supply continues to be at the current level. Apartment owners should expect taking a longer time to find tenants, who can conduct more successful negotiations.”

Over the past year WeCheck found that rents rose 3.7% in Herzliya, 2.4% in Rishon Lezion, 1% in Haifa, 0.7% in Jerusalem and 0.1% in Beersheva. Rents fell 3.3% in Ashdod, 2.3% in Tel Aviv, 2% in Ashkelon, 1.7% in Netanya and 1.3% in Holon.

An issue still under the radar is the impact of the evacuees on the rental market. WeCheck observes, “Evacuees have an effect, but from the situational picture we have it is not fully evident, mainly because a large section of the evacuees are still in hotels, both in the south and in the north. In light of the sharp jumps we see in supply, they offset increases in demand.”

WeCheck’s figures differ from those published by the Central Bureau of Statistics Housing Services Index at the end of last week, which showed a slight decrease in rental prices, but at a more moderate rate. According to the Central Bureau of Statistics, tenants who renewed a contract in November paid 3.2% more compared with the previous contract and new tenants (apartments in the sample where there was a change of tenant) saw a price increase of 4.8%.

Ronen insists his company’s data does not currently show similar increases: “We are checking 50,000 apartments that are on the market, and the trend is a decrease. There is an increase in supply, a decrease in demand, and in general the market today favors renters.”

Published by Globes, Israel business news – en.globes.co.il – on December 21, 2023.

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