Israeli Real Estate Leaders Warn State Land Policies and Labor Shortages Drive Up Prices
At the Globes and Bank Leumi Real Estate Conference, industry leaders warned that state land policies, severe labor shortages, and high financing costs are driving up home prices despite a market slowdown.
The Israeli housing market may be experiencing a slowdown, but the capital flowing into it continues to expand. Credit allocated to the construction and real estate sector now accounts for approximately 40% of all business credit, growing by 14% over the past year. Meanwhile, bank credit specifically for residential construction surged by 40%.
Behind these figures lies a market forced to find creative solutions to sustain operations. Developers are financing completed apartments rather than lowering prices, seeking alternative credit sources, and grappling with high construction costs, severe labor shortages, and bureaucratic delays in land acquisition and permitting.
At the Globes and Bank Leumi Israel Real Estate Conference, industry leaders discussed the prolonged transition period the market is facing during a panel titled "Financing, Infrastructure, Opportunities, Between Promotions and IPOs: Where is the Housing Market Heading?"
The State as the Primary Driver of Housing Costs
Tzachi Didi, CEO of Aviv Melisron, directed sharp criticism at the government, arguing that the state itself has become the primary component in housing prices.
Aviv Melisron's CEO stated:
"The state is the number one factor in the price of an apartment. Without changing the land marketing system, cutting bureaucracy, and increasing the supply of foreign workers, it will be difficult to see any significant drop in prices."
Didi also extended wishes for a speedy recovery to Melisron CEO Ophir Sarid, who recently took a medical leave of absence.
Tzachi Artzi, Head of Construction and Real Estate at Bank Leumi, urged caution against panic regarding credit growth. He explained that banks analyze each project based on projected revenues, expenses, and expected yields under current market conditions, applying strict sensitivity scenarios. The developer's overall operations and cash flow capacity for the next two years are also thoroughly vetted. "I do not identify a credit crisis, but rather a more selective and discerning market," Artzi said.
Alternative Financing and Completed Inventory
Yuval Gavish, Chairman of Ampa Capital (owned by the Ampa Group and Menora Mivtachim), highlighted the evolving role of non-bank credit. He emphasized that non-bank financing is not merely a last resort for companies rejected by traditional banks. Ampa Capital, which manages 55 project financing packages, frequently collaborates with major banks, including a recent 700 million NIS joint transaction with Bank Leumi.
Gavish noted a fundamental shift in how real estate firms consume credit, with many utilizing non-bank entities as complementary funding sources. This is particularly evident in financing completed but unsold apartments. Rather than slashing prices, developers holding inventory or properties with occupancy permits (Form 4) seek interim financing.
Ampa Capital's Chairman explained:
"Developers are trying to find creative solutions with us before selling at cheap prices. In the current environment, credit is no longer just an engine for growth; credit is a matter of survival in a period of uncertainty."
Gavish added that geopolitical and political stability could unlock sidelined investor capital, and called on the state to treat infrastructure development as a national project, particularly around public transit and railway hubs to connect the periphery to the center.
Labor Shortages and Bureaucratic Hurdles
Aviv Melisron, which operates its own construction division to maintain control over the supply chain, views self-execution capabilities as critical amid contractor shortages. However, Didi noted that the pre-construction phase remains the most challenging.
Aviv Melisron's CEO remarked:
"Today, building takes less time than reaching the point where you are permitted to build. Building is the easy part."
He criticized the state's land auctioning system, where the highest bidder wins, driving up final consumer costs. Didi pointed out that developers often wait up to three years after paying for land before development works are completed and possession is granted. Under high interest rates, this delay generates tens of millions of shekels in financing costs. He proposed deferring land payments until actual possession is delivered.
This is compounded by a persistent labor shortage. Effi Shakedi, owner of Effi Capital, joined the criticism, noting that the exclusion of approximately 90,000 Palestinian workers after October 7 left critical gaps in specialized trades such as electrical, plumbing, HVAC, and waterproofing. This has extended project durations and inflated financing expenses.
Shakedi reported that Effi Capital sold over 500 apartments since the beginning of the year, primarily in the periphery, but warned of continued stagnation. "We are preparing for at least another bad year," Shakedi stated, advising companies to adjust their cash flows to the ongoing market sluggishness.
Addressing transaction cancellations, Bank Leumi's Artzi noted a slight increase compared to previous years when cancellations were near zero, but emphasized that the vast majority of transactions are successfully completed, particularly among owner-occupiers.
Shamai Kama, CEO of Ashtrom Living, suggested that the long-term rental market could emerge as a viable alternative to homeownership, urging the state to release more land specifically designated for institutional rental housing.
