Israel Housing Starts Drop as Developers Curb Pace Amid High Inventory
Israel's housing market is adjusting to slowing sales as developers reduce construction starts to 76,000 units annually while inventory stabilizes at 84,300 unsold apartments.
The Israeli housing market is beginning to adjust to a slowdown in sales, as developers scale back construction pace following a period of surging inventory that reached approximately 84,000 unsold new apartments. In the 12 months ending in June, construction began on roughly 76,000 apartments, marking a 7% decrease compared to the corresponding period. During the second quarter of 2026, housing starts dropped to about 17.8 thousand apartments, down from a quarterly pace of roughly 19,000 units previously.
Construction Slowdown Amid High Inventory
Even after this decline, 76,000 housing starts remain a high figure in historical terms. In 2025, construction began on about 80,000 apartments—a record high of more than 30 years—while 2024 saw roughly 70,000 new units initiated. Consequently, the shift is primarily observed in the market direction rather than the sheer volume of units currently being built. Developers are reacting to sluggish sales pace, interest rates, and cooling prices by delaying the launch of new projects to manage mounting financing costs.
Real estate cycles are inherently protracted, taking several years from project inception to final delivery. Therefore, the drop in housing starts does not create an immediate shortage, but it is expected to influence the supply reaching the market in two to three years. Data shows that building permits rose by 2% to approximately 83.3 thousand apartments, indicating that the planning system continues to advance projects, yet fewer developers are rushing to break ground.
Stabilization of Unsold Stock and Market Impact
At the end of June, the inventory of new apartments remaining for sale stood at about 84.3 thousand units. This volume is sufficient for roughly 26 months of sales at the current pace, with more than half concentrated in the Tel Aviv and Central districts. For nearly four years, from April 2022 to the end of 2025, inventory expanded at an average rate of about 1.4% per month, but the trend has stabilized since the beginning of 2026.
The large inventory currently grants buyers more leverage against developers, encouraging financing promotions, payment terms, and discounts, while allowing purchasers to compare a wide array of projects.
Prices are already reacting to weakening demand, with recent data cited by the Bank of Israel pointing to a 1.25% annual decrease in housing prices. Although the interest rate was lowered to 3.25% in early September, gradually easing burdens on mortgage holders and developer financing costs, structural shifts in real estate take time to materialize across the broader economy.
