Significant drop in the volume of new residential construction, in particular in the Jerusalem area

Fifteen thousand new residential units began construction in the first quarter of 2023, compared with around twenty thousand in the corresponding quarter of 2022. However, the concerning news lies in the decline in the number of building permits issued by local authorities: In the past twelve months, approximately 4,500 apartments have begun to be built in Tel Aviv and around 4,000 in Jerusalem.

The increase in interest rates and a sharp drop in the number of home purchase transactions have now affected construction volumes as well. This is according to data published recently by the Central Bureau of Statistics (CBS which states that a total of 14,981 apartments began construction in the first quarter of 2023, a decrease of exactly 25% compared to the construction volumes in the first quarter of 2022.


Despite the dramatic decline in the volume of construction, it is important to note that the significance of this figure is not so clear-cut. This is because the first quarter of 2022, when close to 20,000 apartments began to be built, was considered to be quite unusual, with construction figures apparently at an all-time high. During this period, both the number of transactions and home prices jumped sharply, as was reflected in the number of building starts. Looking at recent years, the pace of construction of 15,000 apartments per quarter, or 60,000 apartments per year, is considered average, and thus against the background of the severe slowdown in the number of transactions, a total of 14,981 apartments may even be considered surprisingly good.

Number of building permits issued in March – one of the lowest in recent years

A figure that may turn out to be more worrying lies in the number of building permits. Building permits granted by local authorities are a prerequisite for the actual construction that will follow, with the standard time between the issuance of the permit and the actual start of construction ranging from two months to six months. Thus, a drop in the number of permits may indicate an imminent drop in actual construction as well.

Indeed, Central Bureau of Statistics data indicates that the number of permits issued in recent months was exceptionally low, especially in March. During that month, local authorities issued permits for the construction of only 3,834 apartments – one of the lowest figures in recent years. In March last year, by comparison, the number was more than two-fold at 7,960 apartments.

During the entire first quarter of this year, permits were issued for the construction of 15,179 apartments, reflecting a more moderate decline of 17 percent compared with about 18,000 permits issued in the first quarter of last year, and a decline of 30 percent compared to the fourth quarter of 2022.

New residential construction in the center of the country, less in the Jerusalem area

By district, the highest number of building starts in the first quarter of the year was in the Central District, which includes Rishon LeZion, Netanya, and Modi’in, and it stood at 4,350 apartments. And not far from it is the Tel Aviv District, which includes Tel Aviv and the cities of Gush Dan with 4,000 apartments whose construction has already begun. The Jerusalem District, which includes Jerusalem and Beit Shemesh, was ranked last in terms of construction out of the six districts. With only about 1,000 building starts in the first quarter.

An examination of the 12 months between April 2022 to March 23 shows that, at least during this period, the volume of permit issuance remained high, at 75,000 homes, reflecting only a slight decline of about 2.6 percent compared with the preceding 12 months. In contrast, there has been a decline in the annual rate of actual construction, with a total of about 62,500 housing units begun in the past 12 months.  This reflects a decline of 10.4 percent in the annual construction rate compared with the preceding 12 months.

A sharp decline in new residential construction in Beit Shemesh, increase in Negev cities

By city, Tel Aviv led the volume of construction in the past 12 months (April 2022-March 2023) with 4,514 apartments whose construction began at the same time, but this figure is about 14% lower than the volume of construction in the preceding 12 months. Jerusalem ranked second with 4,005 building starts (a decrease of 3.7%), followed by Rishon LeZion with 2,764 housing units (a 7% decrease) and Bat Yam with 2,652 (a 12% decrease ). Be’er Sheva in the Negev was ranked fifth with 2,200 building starts, which reflects a 56.3% jump in the annual rate of construction.

Other interesting data show that Kiryat Gat, also in the northern Negev, more than doubled its residential construction volumes with about 1,200 building starts. Beit Shemesh, near Jerusalem, presented the same figure – but in this case, it reflected a reduction in the volume of construction by more than half, since in the preceding 12 months about 2,800 apartments had been built in the city. Modiin maintained solid construction data, with 586 new apartments under construction, reflecting a 17% increase in construction volumes.

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The contents of this article are designed to provide the reader with general information and not to serve as legal or other professional advice for a particular transaction. Readers are advised to obtain advice from qualified professionals prior to entering into any transaction.

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