Renters compromise on apartment quality, and the middle class is abandoning the market
An analysis of apartment indices in the second quarter of 2026 shows that the middle class currently prefers not to buy an apartment, and that renters are turning to rent cheaper and lower-quality apartments. The average price for an apartment purchased during the quarter reached 2.435 million shekels - an all-time high.
Renters are in a difficult position, compromising on the quality of the apartments they rent, while the housing market remains firmly in the hands of wealthy buyers. Those with fewer financial options currently prefer not to buy, according to data from the Central Bureau of Statistics (CBS) on apartment indices for the second quarter of 2026.
Key data from apartment indices
The housing services index, which reflects rent fluctuations, rose by 0.7%. This increase was driven by new tenants, who are paying on average 4.7% more than their predecessors, while those renewing contracts saw a more modest increase of 2.6%. The apartment price index for May-June rose by 0.1% compared to April-May.
What is happening in the rental market?
The market is suffering from negative government intervention, specifically policies aimed at eliminating private real estate investors who provide the bulk of the supply. High purchase taxes have made investment unattractive. Furthermore, efforts to encourage institutional entrepreneurs to enter the long-term rental market have stalled due to high interest rates and insufficient government incentives.
The result is clear: renters are paying more for lower-quality apartments.
The CBS utilizes two indices to track the market. The first is the monthly housing services index, which rose 0.7% in July and 3.1% year-to-date. This index models a theoretical apartment based on variables like location, size, and age. The second index tracks "raw" average rent prices without adjusting for apartment characteristics. Average rent reached 5,086 shekels per month at the end of June, a 1.9% increase from the end of last year.
When the housing services index rises significantly faster than raw price averages, it indicates that renters are shifting toward cheaper, lower-quality units—likely older apartments or those in areas with excess supply.
Apartment price trends
The summary apartment price index for the second quarter showed a marginal increase of 0.1%, which we assess as a technical correction following sharp declines in previous months.
Increases were recorded in "smaller" districts: Jerusalem (+1.8%), Haifa (+1.5%), the North (+0.9%), and the South (+0.7%). Conversely, the "larger" districts with the most weight in the index—the Center and Tel Aviv—recorded declines of 1% and 0.7%, respectively. Despite the marginal quarterly increase, the downward trend remains.
Who is buying?
CBS data for the second quarter shows the average price of a purchased apartment reached 2.435 million shekels. This is an all-time high, up nearly 4% from the first quarter and nearly 3% from the end of last year.
This significant rise in the average purchase price, occurring while the general apartment price index is declining, confirms that the mix of apartments purchased in the second quarter skewed heavily toward much more expensive properties. Data from the Bank of Israel shows that the share of mortgages for apartments priced at 5 million shekels and above is at record levels. This reinforces the thesis that the current market is dominated by a wealthy population capable of buying even in challenging times, while the middle class tends to exit the market until better days.
