The annual level of start-ups close to 60,000 apartments has been recorded a few times over the past decade, despite the current increase in construction starts, the increase recorded simultaneously with the demand for the purchase of sharper housing
There is a record volume of construction starts in 2021 while the rate of completion of residential construction continues to falter
The CBS data show that the volume of residential construction starts in the third quarter of 2021 amounted to about 13,000 dwellings and in the last four quarters reached 56,000 dwellings about 2% more than the rate of construction starts in the previous year. In light of this, and given the high rate of issuance of building permits of about 63,000 in the past year, it seems that in 2021 the total number of construction starts will reach a relatively high level of about 60,000 apartments. Over the past decade, the volume of construction has been similar or slightly higher than the housing needs of the economy, which we currently estimate at about 55,000-60,000 apartments per year.
The volume of high construction starts seems to reflect the maturation of planning processes that took place several years ago, such as: a high rate of marketing of state-owned residential land in 2017-2018; And an increase in past years in the volume of planning inventory of urban renewal projects, construction starts as part of urban renewal have increased in the past year by about 13% compared to the previous year. The fact that these processes matured only in 2021 reflects the much slowness that characterizes the planning and licensing processes in Israel, relative to the developed world.
The completion of residential construction, on the other hand, continues to be significantly lower than its level on the eve of the corona crisis, as well as the level needed for the needs of the economy. The scope of the construction completion in the third quarter of 2021 reached only about 11,000 apartments and in the last year amounted to about 46,000 apartments, compared to the construction completion of about 53,000 apartments in 2019, on the eve of the Corona crisis. Against the background of the decline in the completion of construction, the volume of active construction of apartments increased and in the third quarter of 2021 reached a record level of about 139,000 apartments.
The decline in residential construction is consistent with other indications of the difficulty of the construction industry to recover from the effects of the corona, such as a high rate of vacancies in the industry about 6.5% compared to about 5.1% in the economy as of October 2021. This is partly due to the difficulty of increasing the situation The workforce imported from abroad, given the waves of morbidity in the world and in light of restrictions on foreign arrivals into Israel, as well as in view of the difficulty of recruiting workers who were expelled to the IDF during the Corona crisis. The CBS Business Trends Survey shows that even a shortage of equipment and raw materials now constitutes a more significant limitation on activity in the construction industry compared to the past, given the global shortage of supply of various building materials. Which ended in November 2021.
In summary, the data show that the pace of residential construction is still struggling to return to its level on the eve of the corona crisis, in a way that is hurting the pace of construction completion. At the same time, assuming that the current increase in corona morbidity will not lead to exacerbation of disruptions in the activity of the construction industry, we anticipate that the completion of residential construction will gradually recover in the coming quarters. This coincides with the renewed increase in the volume of investment in residential construction, which has been recorded in the economy since the second quarter of 2021.
Despite the rise in construction starts, record demand for housing has led to a decade-long peak in the rate of rising house prices
Despite the current rise in construction starts, the concomitant increase in demand for the purchase of housing is even sharper. This, as reflected in the requested amount of new apartments, apartments sold + apartments not for sale, such as “Build Your Home” projects and purchase groups, which reached a peak of 17.5 thousand apartments in the last three months, August-October 2021. Demand in recent months has “jumped another step,” among other things in light of the onslaught of many real estate investors on apartments, in an attempt to make ends meet and make purchase transactions even before the purchase tax increase on investors, which took effect on November 28.
Excess demand in the housing market leads to a continued acceleration in housing prices. According to the CBS ‘monthly housing survey, the annual rate of increase in housing prices reached 10.3% in September-October 2021, the highest annual rate recorded in the economy in about ten years. In our estimation, in the coming months a continued accelerated rise in house prices is expected, but later in 2022 a certain slowdown in the rate of price increase is expected. This is in light of the expectation that the demand for the purchase of apartments has fallen from the current record levels, among other things in light of the negative impact of the increase in the purchase tax on the activity of investors in the market.