Israel's housing market faces a challenging landscape in 2022, with soaring home prices making it one of Europe's costliest places to buy property. Deloitte's report highlights Israel's top position in construction starts but also reveals its second-lowest housing stock per capita. Rising interest rates are putting pressure on mortgage borrowers, while the affordability gap continues to widen. A 70-square-meter home in Israel costs an average of 10.2 years' gross annual salaries. This report sheds light on how these housing market dynamics impact the economy and the quality of life in the country, providing insights into Israel's unique real estate situation.
According to a recent report by Deloitte, in 2022, Israel emerged as the costliest country in the European region to purchase a home, despite not being geographically part of Europe. The average price per square meter in Israel was €5,701 (NIS 23,537; $6,204), leading the list. This survey included 27 countries, with Israel being the sole representative from the Middle East. Austria retained its position as the second most expensive country for two consecutive years, with an average transaction price of €4,925 per sqm, followed by Germany at €4,800 per sq.m.
In 2022, France and Norway secured positions among the top five priciest countries for home purchases, with prices per square meter at €4,639 and €4,204, respectively. On the flip side, the most budget-friendly country for buying residential property turned out to be Bosnia and Herzegovina, where the average price per square meter for new dwellings was €1,237. Following closely was Greece, with an average transaction price of €1,330 per sqm, and Romania ranked third with a price tag of €1,417 per sqm, indicating the lowest transaction prices.
When comparing residential property markets across 76 cities, Tel Aviv took over the title from Paris as the most expensive city in Europe to purchase a square meter of an apartment in 2022, as revealed by the annual survey conducted by the accounting firm. The average cost for a new dwelling in Tel Aviv stood at €14,740 per square meter, with Paris following closely at €14,622, and Munich at €11,400. London, at €9,163, and Amsterdam, at €7,775, lagged significantly behind in terms of prices.
The accounting firm attributed the increase in average transaction prices for new homes over the past year to factors such as the conflict in Ukraine and sharp rises in energy expenses, building material costs, and interest rates.
In the past year, the Bank of Israel has gradually raised the benchmark interest rate, going from a historically low 0.1% in April 2022 to 4.75% in May of the current year. This move was aimed at curbing inflation and had the effect of increasing mortgage expenses for homebuyers. Consequently, after experiencing a substantial 20% year-on-year increase in 2022, home prices have started to stabilize in recent months.
As interest rates continued to rise, both existing and prospective mortgage borrowers in Israel faced significant challenges, especially since the majority of home loans in the country are linked to variable rates. Simultaneously, the required equity for purchasing a home has been steadily increasing, leading to a widening affordability gap.
According to the report's calculations, the cost of a 70-square-meter home in Israel amounted to an average of 10.2 years' worth of gross annual salaries. By this measure, Israel ranked as the fifth-most expensive country for buying a new home, following Slovakia, the Czech Republic, Serbia, and Estonia.
Furthermore, Israel secured the top position in the list of countries with the highest number of housing construction starts, with 6.95 new constructions initiated per 1,000 inhabitants in 2022. Austria and Lithuania followed closely with 6.47 and 5.81 new housing projects per 1,000 inhabitants, respectively.
In contrast, Israel had the second-lowest quantity of available housing units, with only 295 dwelling units per 1,000 inhabitants, exceeded solely by Greece, which had 285 units per 1,000 inhabitants. The average housing stock across the European region was 473 dwellings per 1,000 inhabitants.
Bulgaria boasted the highest housing stock per person, with 624 dwellings per 1,000 inhabitants. Portugal and France followed closely with 585 and 552 units, respectively. The report emphasized that the overall housing stock's size is often regarded as a significant indicator of a country's quality of life and economic development level.
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