Bank of Israel Research Department analysis: The residential rental market during the corona crisis
- market activity declined. From the beginning of the period until mid-April 2020, there was a decline of up to 50 percent in public interest in renting dwellings, compared with the same period last year. At the same time, the number of home rental advertisements published by landlords declined. However, in the last two weeks of April, there was a marked recovery both on the part of tenants and on the part of landlords, with a return to a level similar to what was prevalent prior to the imposition of restrictions.
- The sharpest decline in the number of rental advertisements among the cities (more than half relative to the situation prior to the imposition of restrictions) was in Jerusalem. The main exception is Tel Aviv, where there was a significant increase in the number of dwellings offered for rent as early as mid-March, apparently due to the decline in tourists’ demand for Airbnb apartments and the transition of those apartments to the local rental market.
- Overall in Israel, there has been no significant moderation in requested rental prices, at least thus far. However, while there was a decline of about 15 percent in rental prices in Tel Aviv following the imposition of movement restrictions, that decline was from a relatively high level, so that requested rental prices have now returned to close to where they were a year ago.
The outbreak of the corona pandemic and the ramifications of the measures taken to deal with the pandemic have led to an economic crisis and to greater uncertainty than usual. The Bank of Israel is monitoring various economic developments on an on-going basis, and for this purpose has compiled a set of rapid indicators in various fields that help in making policy decisions at the Bank and in the Bank’s function as economic advisor to the government.
In order to obtain a picture of recent developments in the residential rental market, the Bank presents rapid indicators of demand sentiment, alongside supply and rental prices with a geographic breakdown at a weekly frequency. Google Trends indices of searches for rental housing provide an indication of demand sentiment (tenants). The supply side is presented by the number of residential rental advertisements on Internet advertising sites, from which indicators of the development of rental prices are also derived.
The supply side: Residential rental advertisements
The supply side is presented through the number of new advertisements of homes for rent on Internet advertising sites (1.5–5 room homes). It should be noted that the number of advertisements typically shows seasonal behavior, with the low point generally reached in April. As such, in the context of the current crisis, an increase in the number of advertisements specifically in the recent period would show an uncharacteristic increase in supply and support the expectation of a decline in rental prices.
Figure 1 shows the data from the start of the year (solid blue line) and the same period last year (dotted red line) at weekly frequency and with a geographic breakdown in line with the Central Bureau of Statistics. In general, in the four weeks following the imposition of restrictions on movement and employment in mid-March, there was a decline of between 30 and 40 percent in the number of new advertisements in most areas. However, in the past two weeks (April 12-25), there has been a significant increase on the supply side. The prominent exception is Tel Aviv, where supply increased as early as March, in contrast with the seasonal pattern in which a general decline in supply would have been expected during the period.
In addition to the prominent exception of Tel Aviv, Jerusalem and the southern region were also exceptions. In Tel Aviv, there was a sharp increase in the number of new advertisements, and cumulatively since the start of the restrictions, there were about 67 percent more rental advertisements published than in the same period last year. This apparently reflects a broad transition of Airbnb apartments that were mostly intended for tourists to the domestic rental market, as reported in the media. This development supports the expectation of declines in rental prices in Tel Aviv.
 It should be noted that the data presented herein are indicative of rental prices in new contracts. During normal times, rental prices in existing contracts are rigid, since they are determined at the date the contract is signed. The findings presented herein are relevant to the owner-occupied housing services component of the Consumer Price Index (about 71 percent of the Housing component, and 17.2 percent of the overall CPI), which measures the change in rental prices in new and renewing contracts, and not to the rents component, which measures rental prices in all contracts.
 On average, about 2000 new advertisements are published per week since the beginning of the year. SOURCE: Bank of Israel based on Homely.
 There is another indication supporting this, which is also obtained from the Google Trends indices for searches for Airbnb apartments in Tel Aviv. These searches declined sharply from the middle of March, and until now there are no signs of recovery.