The discrepancies between the data published by private companies and the publications of the Central Bureau of Statistics (CBS) regarding residential rental prices raise the question of whether the CBS data misses a major phenomenon of price increases in the rental market? Why does the rental price index hardly move, when renters complain on social media about rental price increases of tens of percent?
In order to give a reliable answer to this question, one must first understand how the Central Bureau of Statistics measures. Each month the Central Bureau of Statistics works on a representative sample of approximately 18,000 households that rent apartments. This is a fairly large sample, if we take into account that current polls regarding elections, for example, include a total of 500 sampled. These households are asked about details such as the location of the apartment, the number of rooms in it, the start and end dates of the leases, the rents and whether they include various charges, whether there is a mechanism in the contract for linkage to an index or any linkage, and more.
The rent index: “re-rentals” are also being checked
The CBSA knows how to track the rented apartment, and thus they can see whether the contract in the apartment has ended or not. And if it has ended, whether a tenant has changed or a contract with the existing tenant has been renewed. The price in the previous month compared to the price in the current month. All of this is divided into apartments where the contract continues, the contract with the same tenant is renewed, or a contract is signed with a new tenant. The sample of apartments also represents all the apartments in the market.
The CBS translates the findings from those surveys into two products: the first is a rent index. This index tests the entire sample. The important thing about this index is the division of the renter population into three groups: the largest group, which numbered 86% of renters last month, is the one that continues to operate and without significant changes under an existing lease.
The second group, which is about 10% of the tenants, includes those who have renewed a contract in the same apartment, but their rent has changed. An increase of about 3.5% was recorded in their new contracts. Another 4% of the tenants in the sample are included in apartments where there was a change of tenant. That is, they are new tenants. According to the latest index, the leases signed last month include an increase of about 7% in the rent price. This publication is relatively new, so it is not possible to get an impression of the increases in new contracts more than a few months ago.
“We started publishing these data about three months ago in light of the media’s preoccupation with the issue,” says Doron Seig, director of housing indices at the CBS. “S”.
Doron Seig, director of housing indices at the Central Bank of Israel / photo: private photo
The problem is that the gap between what was published by various private companies and complaints on social networks – was large. The latter described a situation of rents that sometimes jump by thousands of shekels, while the CBS continued to publish data on a monthly increase of fractions of a percent up to a percent or so. %) from the rental market. The more significant group is the tenants who renew a contract, for whom the rent increases on average more moderately than the first group. And finally, the group of tenants who are under an existing contract and do not experience price changes on a monthly basis,” explains Sage.
The new publications of the CBS caused misunderstandings, as there were those who tried to compile an independent index from them, which is not true. It is forbidden to connect the data of the new contracts of July to those of June, since these are other contracts, which have no connection between them.
Sage says that the new information makes it possible to learn not only about the general change in rent but also about the factors that influenced this result. “This information can teach about trend changes when a time series is analyzed over time,” he says. Currently there is no historical data for these variables.
Since the weight of the two populations that signed new and renewed contracts is not large among all renters, the total rent index increased last month by 0.6%. The reason is that rent measures a phenomenon different from the one that is being warned about on social networks.
The housing services index: more weight for new contracts
Another index of the CBS is called the “Housing Services Index”, in which the CBS measures the change in rental prices while giving greater weight to the change in prices in new and renewed contracts. In total, the June and July indices recorded a 2% increase in rental prices. This is a higher rate than the rent index, but it is also very far from the tenants’ complaints. As mentioned, increases of 3.5% and 7% were measured in these two groups in July.
Sage explains in this regard that in this index a comparison is made between the average rent reported by new tenants and renewing tenants over time, while creating statistical constants that will make the apartments of equal quality. Let’s illustrate: if the rent of a 5-room apartment in Tel Aviv increased by 8% in a certain month, and the rent of a 3-room apartment in Be’er Sheva increased by 2% in the same month – it is not possible to perform a simple averaging between the two events. Therefore, statistical formulas should be included in this index, in order to place the two apartments – and thousands of other similar apartments that are measured – in one common denominator. And since the index includes not only apartments in Tel Aviv and its surroundings, where most of the complaints come from, but from the whole country – its final product seems to be one that does not reflect what the complainers feel.
What can be seen is that the index in recent months has been rising at a slightly faster rate than in the past. “It can be seen that in recent months there has been a continuation of the rate of price increase both for new tenants and for those renovating, which may indicate an increase in the increase in tenant-owned housing services,” says Sage. According to him, part of this is a seasonal product of the summer months, when there is a large turnover of apartment tenants and contract renewals. Sage says that the peak takes place in August. He is careful not to say, but it can be inferred – that the rental rates for this month and next month will probably be high.
In any case, as part of the consumer price index, only the housing services index is published, without details of renewable and existing contracts.
“As far as I know, information abroad according to types of tenants is published mainly in the research literature for a deeper understanding of the changes over time and their origin,” comments Sage.
So what is the source of the gap between the CBS data and the publications on the internet boards?
“First, the survey population is apartments that are up for rent. This does not include apartment renewals since apartments where the tenants are renewing a contract are not published on the Internet. It also does not take into account the rent of tenants who live in rent under an existing contract; secondly, it is a requested price and not a price In practice, the gap between them is not uniform over time and geographical area and therefore may lead to measurement biases,” says Sage, but he does not rule out these measurements and says that “the information published by private companies can be used by households that wish to rent a new apartment because for this purpose The relevant information is the requested prices of apartments that are available for rent.”