To combat soaring house prices, Israel is offering a stranglehold on Airbnb rentals

An empty property is a lost opportunity for a home, even just for a day. Or at least that’s how the Israeli government sees it.

In November 2021, when the government unveiled its housing plan, a key element was a proposal to crack down on short-term rentals – accommodation offered by the day, week or month, mainly to holidaying tourists via platforms like Airbnb.

Over the past year, short-term rentals have been blamed for hurting hotels trying to recover from the COVID-19 travel shutdown and crowding the real estate market, making it even more difficult to find affordable real estate in high demand areas like Tel Aviv. , especially for long-term tenants.

At the heart of the problem are house prices that have baffled successive governments for more than a decade, each proposing various programs to ease the crisis. Most plans, like the most recent proposed by the government, have sought to drive down prices by flooding the market with apartments, either accelerating new projects or discouraging the purchase of second homes for the purposes of investment. The current proposal also includes the possibility of some sort of permit system for short-term rentals, which means they can be refused in areas of high rental demand, affecting up to 13,000 properties according to the Ministry of Foreign Affairs. Finances, and effectively closing them. down.

It’s hard to know how many short-term rentals actually exist in Israel. The market is generally considered to consist primarily of landlords who use Airbnb or similar platforms to rent out their property, or part of it, for a few days or sometimes longer, usually to tourists. Stays are often cheaper than hotels, offer different amenities or types of space, and cater to everyone from large families on vacation, to backpackers looking for a place to sleep, to domestic tourists, and even international travelers. ‘business.

Airbnb has more than 10,000 “hosts” offering the use of their homes across Israel, a spokesperson for the platform told The Times of Israel. He said the majority of Israelis only list one property, which they live in and leave to rent their house for a few days here and there.

The sun rises over Tel Aviv, October 2019. (ZZ3701 via iStock by Getty Images)

Booking.com (which includes some hotel rooms) offers more than 2,800 properties in Israel. And while zimmers — rustic cabins, romantic suites and the like — aren’t typically designed to be used as homes and are typically located far from major cities, some of the 1,500 properties listed on Zimmer.co.il are actually homes. or converted apartments, including in cities like Tel Aviv and Jerusalem.

Actual availability is likely lower than these numbers suggest, as landlords normally list properties on multiple platforms, including local sites like Israelt.

By comparison, Israel currently has 56,914 hotel rooms, with plans for several large new hotel developments slated to open in the next five years. About 10,000 existing rooms are in the Tel Aviv area, with another 5,000 rooms in the works.

The research suggested that, in general, the markets for hotel stays and short-term rentals are different, with short-term rentals originally offering more self-service style accommodation in remote locations. That’s changed a bit because of the COVID-19 pandemic and since Airbnb started including boutique hotels in late 2019. The platform and its competitors still offer something very different from the hotel market.

The new David Kempinski Hotel in Tel Aviv, overlooking the Mediterranean Sea and opening April 2022. (Courtesy Kempinski)

That’s part of the reason the Israel Hotel Association has called for stricter regulations and higher taxes on homes used as vacation rentals. The association argues that there is no level playing field since most short-term rental operators do not pay commercial occupancy taxes, allowing them to charge lower prices.

In 2019, Tel Aviv promised to consider restricting vacation properties, citing the growing number of apartments offered to tourists on Airbnb and others, even as tenants seeking to live in the city became more expensive. . However, before the city could act, the pandemic hit and the plan appears to have been put on indefinite hold.

Today, an estimated 9,000 properties are used for short-term rental in the Tel Aviv area, home to some 4 million people. The year 2021 has seen more than 5,000 new home starts in the crowded city. But rents have risen 10% in the first two months of 2022 and are still rising, making the world’s most expensive city even more expensive.

Nahum HaNavi Street in Tel Aviv, by Sderot Nordau. (Ricky Ben-David/Times of Israel)

Yet even though the average rent for a three-bedroom apartment in Tel Aviv is over NIS 10,000 ($3,000) per month, landlords can still earn significantly more by using their property as a vacation rental.

A study by website Compare the Market examining the average monthly cost of renting an Airbnb property in 90 global tourist hotspots showed that Tel Aviv had the fifth highest average monthly rate in the world, while Jerusalem was tenth. . By participating in the short-term rental market, a host can earn 243% more per month than a private (long-term) landlord in Jerusalem and 192% more than a private landlord in Tel Aviv. The commission they have to pay to Airbnb at 3% does not significantly reduce their profits.

Tel Aviv is not alone in the list of cities that want to limit short-term rentals. In Paris, fines have been imposed and registration requirements have been imposed in an attempt to control Airbnb’s reach. In Barcelona, ​​the city requires Airbnb operators to have a license. And in Berlin, second homes can only be rented 90 days a year.

In Santa Monica, California, which has imposed the strictest controls, rentals for any period less than 30 days are prohibited unless the owner also stays on the property, in which case a business license is required and operators must collect a 14% occupancy tax. with tenants.

Israel’s latest new housing plan is expected to be released this month. It can go ahead with a strict licensing regime, financial disincentives or an outright ban on short-term rentals in certain parts of the country.

Or lawmakers can quietly drop the issue in favor of other potentially more effective measures.

Currently in Israel, no license or registration is required to run a short term rental. Owners are expected to register the house as a business and pay income tax and in some cases sales tax is also levied.

Airbnb CEO Brian Chesky speaks at an event in San Francisco, Feb. 22, 2018. (AP/Eric Risberg)

But Boruch Levenson, senior accountant at Dray and Dray, suggested the tax authority hasn’t been “super aggressive in the hunt for rental income”.

‘There are other ways to discourage people from renting short-term by using other financial tools,’ he told The Times of Israel, suggesting that such properties be subject to local property tax rates. higher.

In 2016, the tax office reported that more than 30% of landlords renting properties short-term avoided paying taxes by not declaring their income. The percentage of tax evaders in Tel Aviv (48%) and Jerusalem (44%) was even higher.

An apartment that was available for rent in quarantine in Tel Aviv during the COVID-19 pandemic. (Courtesy of Eyal Leventhal Ben David)

As it sought to free up housing in the center of the country, the government has also encouraged landlords in outlying areas of the country to build separate housing on their properties.

Small apartments are often ideal for young families starting out, supporting population growth in towns and villages far from Tel Aviv or Jerusalem. The units also make ideal short-term vacation rentals. Some can be found on Airbnb right now.

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