A Nation of Homeowners Is Learning to Rent: Can Israel Build a Real Rental Market?

For generations, owning a home was close to a national value in Israel. Today, as prices outpace incomes and the population keeps growing, more and more people are renting, some by choice and many because buying is out of reach. New immigrants often need a place to land while they find their footing, and for some, renting is the only realistic way to make the move at all. Urban renewal projects also need rentals to house residents while their buildings are rebuilt. Speaking on a recent podcast, the acting head of Israel’s state-owned rental company set out his proposals to scale up the sector, including a tax break designed to bring institutional investors in.

In Israel, owning your own home has never been only a financial decision. For the generation that built the state, an apartment meant stability, permanence, and a piece of the country that belonged to you. Parents saved for decades to help their children buy. Banks, policymakers and families all worked on the same assumption: you buy a home.

That assumption is increasingly hard to sustain. Housing prices across much of the country, especially in the centre and in Jerusalem, have climbed well beyond what an average salary can support. A young couple with good jobs in Tel Aviv, Ramat Gan or Jerusalem can easily find that the deposit alone takes years to save, and that the mortgage on a modest family apartment would take up a painful share of their income. For many, the traditional route to ownership simply isn’t available anymore, at least not where they want to live.

A Quiet Change in How Israelis Live

What has emerged is a pattern that would have seemed odd a generation ago but is now very common: people buy where they can afford and rent where they want to live.

A family might buy a smaller apartment in a peripheral area or a developing neighbourhood on the edge of a city, rent it out, and use that income to help cover their own rent in the center of the country. They still get onto the property ladder, build equity and benefit from long-term appreciation, but they live as tenants. Ownership becomes an investment instead of an address.

Meanwhile, Israel’s population keeps growing quickly. The country has passed 10 million residents, and its birth rate is among the highest in the developed world. Demand for housing keeps outpacing supply, and a larger share of that demand is now for rentals.

Then there are the newcomers. Every year, thousands of Jews from North America, France, the UK, South Africa, Latin America and beyond make Aliyah. Some arrive ready to buy. Many don’t, and for good reason. Some want to try life in Israel before committing to a city, a neighbourhood or a school system. Others arrive with savings that, after a currency conversion and a look at Israeli prices, don’t stretch to a purchase. For them, renting isn’t a fallback. It’s the sensible first step, and sometimes the only realistic one.

All of this points the same way. Renting in Israel is no longer a short stage before buying. For a growing number of people, it is how they live, often for many years.

A Rental Market That Wasn’t Built for This

Most Israeli rentals are owned by private individuals, often someone with one or two investment apartments. Leases typically run for a year. Renewal is uncertain. Rents can jump between contracts, and tenants can be asked to leave if the owner decides to sell or move a relative in. Maintenance depends on how responsive the landlord is.

That works poorly for families who want to stay in one place, keep their children in the same school, and plan more than a year. A professional long-term rental sector is meant to fill exactly that gap.

Where the Institutional Investors Come In

In many countries, pension funds, insurers, and real estate investment trusts own large rental buildings and manage them professionally for decades. They want steady, predictable income, and residential rental at scale provides it.

Israel’s institutional investors are interested in the same model. They have capital to deploy and want stable long-term assets. What they need is a business case that works. At the moment, Israeli rental yields are thin, and the tax cost of buying entire buildings makes the numbers difficult, which is why tax incentives have moved to the centre of the discussion.

Dira Lehaskir: A Decade In, Still Building

The government’s main vehicle for building this market is Dira Lehaskir (“Apartment for Rent”), a state-owned company set up more than ten years ago to create an institutional rental sector. Speaking on Nadlan Center’s urban affairs podcast, the company’s acting CEO, Eyal Yahiel, acknowledged that it is still well short of that goal.

Yahiel has been with the company since its founding and has 35 years of real estate experience, including senior roles at Migdal’s pension fund, Paz and Nat”a. In his view, the main reason for the slow progress is that government policy spent years pushing people to buy, not rent. The company carries out policy; it doesn’t set it.

The history supports him. After the 2011 social protests, Yair Lapid, then not yet in politics, spoke of building 150,000 rental units within a decade. Yahiel says that number was never tied to a real work plan. When Moshe Kahlon became finance minister, the government’s housing effort moved strongly toward Mechir Lemishtaken, the subsidised home-purchase lottery. Ownership stayed the priority.

According to Yahiel, Dira Lehaskir’s pipeline now includes about 32,000 units. Roughly 7,000 are occupied, about 20,000 are under construction, and around 5,000 are at tender stage. He expects about 10,000 more to be occupied by the end of 2028, bringing the total to around 17,000. The company is also planning about 30 large projects covering more than 150,000 units, including Holon’s H/500 plan, and handles government projects such as housing for career IDF personnel moving to the Negev.

Proposals for the Next Government

Looking ahead to the next government, Yahiel outlined a three-point plan to scale up the rental sector:

1. A rental quota in every large plan. A fixed percentage of units in every large residential plan would be reserved for rental. He acknowledged that the Israel Land Authority and the Finance Ministry oppose the idea, but argued that without a structural requirement, rental will always lose out to units built for sale.
2. A much faster pace. 10,000 rental units would be marketed every year, adding around 100,000 units over a decade.
3. A tax incentive for institutional investors. Institutions buying rental projects would pay purchase tax of just 0.5%, similar to relief REITs can already receive under certain conditions. Getting pension funds and insurers to buy these buildings and hold them for the long term is, in many ways, what the whole model depends on.

This relief is intended for institutions buying entire projects, not individual buyers. Under Israeli law, a foreign resident buying an apartment is classified as an investor and pays investor-rate purchase tax from the first shekel. That would not change under this proposal.

Why Rental Is Hard to Build

The economics explain much of the difficulty. A developer building for sale can sell apartments off-plan and use buyers’ payments to help fund construction. A developer building for rent has no pre-sales: the land and the building are paid for long before the first tenant moves in. Rising interest rates have made that even harder. One measure that has helped is allowing developers to pay for land in instalments over two years, and Yahiel wants it renewed.

There is also an important detail in how these projects are structured. Under the standard Dira Lehaskir tender, the developer must rent the units for 20 years and may then sell them on the open market. This is not permanent public housing. Yahiel’s view is that at current Israeli yields, a rental model with no exit doesn’t work financially. The hope is that institutional investors will buy these buildings and keep renting them long after the 20 years are up.

The Urban Renewal Angle

The rental question also affects Israel’s urban renewal drive. Tama 38 and pinui-binui projects are replacing ageing buildings across the country, but rising construction costs have made many of them less profitable, and developers have become more cautious. Even when a project goes ahead, the residents need somewhere to live during construction. A project relocating 400 households needs 400 rental apartments nearby.

Yahiel noted that an earlier effort with the Jerusalem municipality to arrange alternative housing for displaced residents never materialised. His argument is that rental stock should be planned as part of city-wide planning, not arranged at the last minute. Without it, renewal projects slow down, and so does delivery of new apartments to buyers waiting for them.

Looking Ahead

Israel isn’t going to stop valuing home ownership, and it shouldn’t. Buying property here, whether as a home, an investment or a future base for the next generation, remains one of the strongest long-term moves a family can make.

But the market is changing. Affordability pressures, a fast-growing population, a generation that buys to rent out and rents to live, and a steady flow of new immigrants who need somewhere stable to land are all pushing rental closer to the centre of Israeli housing. A professional long-term rental sector, backed by institutional money and supported by sensible tax policy, would give all of these groups a better option than the one-year lease.

Whether that happens now depends on the next government. The demand is clearly there.