High prices, construction putting pressure on Tel Aviv rental market

Tel Aviv has long been Israel’s hottest market for housing acquisitions for many years, but the city’s rental market has slowed down since the start of Israel’s war with Gaza on October 7, 2023.

While rental prices in Jerusalem have spiked as much as 25 percent during the past year, rates in Israel’s second-largest city have barely risen, and many owners have cut prices, agents told The Times of Israel.

“During the first few months after October 7, the market came to a stop, and rent prices fell,” said Gal Shekel, owner of Shekel Real Estate. “Frequent rocket sirens killed demand, and many young people who had been planning on moving to the city ended up staying at their parents’ homes. The sudden loss of tourism also led many owners to look for long-term renters instead of focusing on vacation rentals, so there were suddenly a lot of new apartments on the market.”

But now, the market has started to bounce back and prices have risen somewhat over the past year, he said.

According to the Central Bureau of Statistics (CBS), rental prices in Tel Aviv went up 3.9% during 2024, a bit lower than the nationwide average of 4.7%. Tel Aviv has the most expensive apartments in the country, with an average three-room (two-bedroom) apartment going for NIS 6,967 ($1,953) and four-room (three-bedroom) flats going for NIS 8,584 ($2,407), according to CBS.

The purchase price of a 4-room apartment in Tel Aviv stood at NIS 4.88 million ($1.37 million) at the end of December, or the equivalent of more than 47 years of rent, according to CBS. Many economists say that when the price-to-rent ratio exceeds 20 years, it is better to rent than buy, although that figure exceeds 30 in many Israeli cities.

Rentals are relatively available in Tel Aviv, with 1,625 apartments listed on the Madlan website as of this writing. (For comparison, Jerusalem, with twice as many residents, has only 271 listings.) However, Shekel said, “Only rich people can afford to live in the good areas. I can’t even find a place for myself.”

The city’s reputation for sky-high prices is causing demand to cool, said Amit Ferenz of MyPlace Realty. “There are fewer young people looking to rent here than in the past, and not enough reasonably-priced apartments for families,” he noted.

The constant noise of construction is a growing factor for renters in Tel Aviv, Ferenz said. The city is home to more new urban renewal projects than any other city in Israel, including a quarter of all “pinui-binui” and “TAMA 38” projects started in the last nine months, according to CBS data. (These are projects in which apartment buildings are renovated or rebuilt at no cost to the owner, by allowing the contractor to build extra apartments to sell as an investment.) The noise from construction has made many apartments almost unlivable, and puts a premium on quiet spaces, Ferenz said.

“Urban renewal has changed the rules of the game for renters,” Ferenz said. “One of the first things people check about when checking out an apartment is how loud the area is. It has a significant effect on the price and desirability of a property.”

Ferenz singled out the areas around Rova 4, the district surrounding the Kikar Hamedina plaza bounded by Ibn Gabirol Street in the west, Ayalon Highway in the east, the Yarkon River in the north, and Shaul Hamelech Boulevard in the south. Construction activity throughout this pricey district is frenetic, making renting much less attractive, Ferenz noted.

Meanwhile, the city’s developing light rail system does not yet play a significant factor in people’s housing decisions, noted Shirley Werner of Remax Ocean Tel Aviv. Residents have been slow to embrace the first route launched in 2023, known as the Red Line, due to technical challenges, and the timeframes for the Purple and Green Lines, originally scheduled to open this year, have been pushed back by several years.

“The light rail is still operating on a limited basis, so it isn’t impacting people’s rental decisions,” Werner said. “But eventually, there will be higher demand for apartments with easy access.”

Generally speaking, different parts of the city attract distinct populations, Werner noted. North Tel Aviv tends to be the area best suited for families, while the center of the city is filled with young singles. Both are expensive neighborhoods with many luxury units.

South Tel Aviv is more of a mixed bag, Shekel noted. The Florentin and Neve Zedek neighborhoods, once neglected, are now gentrified areas filled with trendy shops and cafes. Prices are much lower in neighborhoods like Neve Shaanan and Hatikva, which are seen as dangerous and undesirable, and Yad Eliyahu, often overlooked on the city’s eastern periphery.

“Those areas aren’t a substitute for people who can’t afford the more expensive parts of the city,” Shekel said. “Many of them would rather move out of the city to Ramat Gan or Petah Tikva nearby.”

As the cost of purchasing an apartment in Israel continues to rise, more people may choose to rent instead of owning. While the average monthly cost of a mortgage has historically been less than the average rental price, that trend has reversed, with the cost of mortgages now 30% higher than renting, according to Meitav Investment House chief economist Alex Zabezhinsky. That means, despite the challenges of renting in Tel Aviv, its rental market is likely to get stronger in the future.

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