It might have been expected, but this week, it became official. The costs of war no longer allow the state to forgo billions of shekels for affordable housing. The first casualty of this shift is rental housing programs, which the Treasury, Israel Land Authority (ILA), and even the Ministry of Housing demand to freeze. This marks the most significant policy change since the 2011 protests.
By Nimrod Bousso, Nadlan Center
A few years ago, during Moshe Kahlon’s tenure as Minister of Finance, a senior official from the Israel Land Authority (ILA) spoke at a central real estate conference and said: “Land price hikes are a failure for us. While it increases the Authority’s income, it comes at the expense of young couples. It’s not one of our goals.”
These remarks reflected the official stance of the ILA and the Ministries of Finance and Housing since the 2011 social protests, which brought the housing crisis to the forefront. One of the most severe failures highlighted then was how state land was marketed to the highest bidder in limited quantities, ensuring continuous increases in land prices—and, consequently, apartment prices.
The social protests shook the system and led to a change in approach. Since then, the state has implemented various measures to create affordable housing solutions, even when losing billions of shekels annually in land revenue. The most extensive solution was the Mechir Lemishtaken program initiated by former Finance Minister Moshe Kahlon, which offered significant discounts on apartments, often amounting to up to a million shekels below market prices.
In subsequent years, additional programs, such as Mechir Lematara reduced the program’s scope and the size of the discounts. However, the principle of subsidizing apartment prices by lowering land costs was preserved.
Alongside the discounted purchase model, albeit on a much smaller scale, long-term rental housing was also developed. The state invested billions in infrastructure through “roof agreements” with local authorities, reinforcing that the state had the funds to address the housing crisis.
A Tradition of Throwing Scraps at Rentals
This framework continued consistently over the 13 years following the protests—until this week. In a letter sent by Deputy Head of the Budget Division Matan Yagel, ILA Director General Yanky Quint, and Housing Ministry Director-General Yehuda Morgenstern to the heads of the planning system, they demanded that district planning committees cease mandating rental housing in their plans. The stated reasons were administrative—calling for a cohesive policy.
However, the actual motivation behind the timing of this letter was not hidden. It is a “complex economic period.” Amid high interest rates and state funds being diverted to war efforts and coalition demands, the government cannot afford to lose hundreds of millions of shekels annually from land revenues for rentals. At best, it will continue its tradition of throwing scraps at rental projects—200 apartments here, 300 there.
This represents a watershed moment. For the first time since the 2011 protests, the state seeks to scale back an affordable housing tool widely acknowledged as essential and equitable. Unlike discounted purchase programs, which give large sums to specific households, rental projects benefit many families over the life of a building.
The Future of Affordable Housing Lies in Rentals
Most experts agree that affordable housing’s future lies in rentals rather than sales. The near-constant price hikes since 2008 have made apartment ownership unattainable for many, even with subsidies. Moreover, the rental model is better suited to combatting “rich city” phenomena, such as those seen in Tel Aviv and neighboring areas, enabling average-income earners to live in these regions.
This is not to idealize the past. The tension between the state’s desire to create housing solutions and its need to increase revenue has always existed. Despite official declarations, the enrichment of state coffers has likely remained a goal of the ILA. However, until now, the government has at least outwardly prioritized creating affordable housing solutions for those unable to afford market-rate rentals or purchases.
This week, amid economic challenges and prioritization of security needs, the Treasury, Housing Ministry, and ILA declared that this era—at least for now—is behind us.
