While many tend to focus on construction costs and developer profits, the real story lies elsewhere. Three core factors: land prices, taxes and levies, and the lengthy timeline required for planning and permitting are what truly dictate the price of a home in Israel. Anyone looking to understand why housing prices continue to rise must examine the entire production chain of a residential project, long before the first excavator arrives on-site.
When discussing housing prices, public attention often gravitates toward construction costs or developer margins, which have indeed increased in recent years. However, the most significant components are found in other stages of the process. Land acquisition costs, government taxes and municipal levies, and the time required to move a project from initial concept to occupancy are the three primary drivers shaping home prices in Israel.
Land prices alone account for a substantial portion of a home’s final cost, especially in high-demand areas. When the state, the dominant landowner in Israel, markets land at high prices, that cost is directly passed on to buyers. In addition, the government collects VAT on new homes, and municipalities impose betterment levies, fees, and various development charges. Ultimately, a significant share of the price of a home consists of payments flowing to the state or local authorities. Any serious discussion about reducing housing prices must therefore include a reassessment of land policy, taxation, and municipal levies.
Time as a cost driver: the price no one calculates
Alongside these components, one cannot ignore the role of time, which has become one of the most influential factors in the rising cost of housing. The journey from an initial idea to obtaining a building permit and beginning construction can take many years. Preparing plans, advancing zoning procedures, navigating planning committees, coordinating with multiple agencies, and securing building permits are all complex, lengthy processes that could often be significantly shortened.
A major source of delay stems from the lack of uniformity in requirements across different municipalities and planning authorities. Developers and planners working in multiple cities frequently encounter inconsistent, and sometimes contradictory, demands, ranging from the scope of required documentation to the interpretation of regulations and standards. This inconsistency creates uncertainty, forces repeated revisions, and significantly prolongs the planning and permitting timeline.
The solution is not merely to increase staffing in planning and permitting committees, but to establish broader national standardization of requirements, documentation, procedures, and timelines. The more predictable, uniform, and efficient the process becomes, the shorter project timelines will be, reducing uncertainty and lowering costs that ultimately affect homebuyers.
A new reality in the industry
Recent years have only intensified these challenges. The shift toward high-density construction and high-rise residential towers has made projects more complex from engineering, planning, and execution perspectives. These projects require more rigorous oversight and approval processes than in the past. At the same time, the Iron Swords War has led to significant labor shortages in the construction sector, disruptions in supply chains, economic uncertainty, and rising financing costs.
When a project originally planned for four or five years stretches into six or seven, and construction timelines for individual units grow longer, costs do not remain static. The land has already been purchased, equity has been invested, and banks continue to charge interest on project financing. Every additional month increases financing expenses, overhead, and risk, all of which ultimately flow to homebuyers. In a high-interest environment, prolonged project timelines have become one of the most significant cost drivers in the industry.
Margolin Engineering & Consulting Co-CEO Yossi Valass Photo: CourtesyIt is important to understand that construction costs themselves, contrary to common belief, are relatively inflexible. They are driven primarily by building standards, material prices, labor costs and regulatory requirements. While some efficiency can be achieved in execution, the greatest potential for reducing housing prices lies in areas where the state and municipalities have direct influence: land policy, taxation, levies, and the duration of planning and permitting processes.
The price is set long before construction begins
The price of a home is not determined at the construction site. It is determined much earlier: in land tenders, in the tax system, in planning committees, and in the time it takes for a project to move forward. Only a comprehensive approach that addresses the entire chain, not just the final stage, can lead to meaningful reductions in housing prices in Israel.
- The author is co-CEO of Margolin Engineering & Consulting Ltd.