Israel offers to control Airbnb rentals to counter soaring prices

An empty property is a lost opportunity to find accommodation, even if only for a day. Or at least that’s how the Israeli government sees it.

In November 2021, when the government unveiled its plan for housing, one of the key elements was a proposal to crack down on short-term rentals – accommodation offered by the day, week or month, mainly to tourists on vacation through platforms such as Airbnb.

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

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At the heart of the problem is soaring housing prices, which have baffled successive governments for more than a decade, each proposing various plans to ease the crisis.

Most plans, like the latest proposed by the government, have sought to drive down prices by flooding the market with apartments, either by speeding up the construction of new projects or by discouraging the purchase of second homes at investment purposes.

The current proposal also includes the possibility of some sort of permit system for short-term rentals, with the implication that they could be refused in areas of high rental demand, which would affect up to 13,000 properties according to the Ministry of Financeand which can therefore no longer be “rented”.

It’s hard to know how many short-term rentals actually exist in Israel. The market is generally considered to be primarily 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. This type of rental is often less expensive than hotels, offers different amenities or types of space, and appeals to everyone from large families on vacation to backpackers looking for a place to stay, to domestic tourists. or even for business travelers.

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

Booking.com (which also includes hotel rooms) offers more than 2,800 properties in Israel. And although the zimmers – rustic cabins, or romantic suites – are generally not designed as homes and are usually located away from major cities, some of the 1,500 properties listed on Zimmer.co.il are actually houses or apartments, especially in cities like Tel Aviv and Jerusalem.

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

By way of comparison, Israel currently has 56,914 hotel rooms, and several major hotel projects should see the light of day in the next five years. About 10,000 existing rooms are in the Tel Aviv area, and another 5,000 are planned.

Of the studies showed that, in general, the hotel and short-term rental markets are different, with short-term rentals initially offering more self-service accommodation in remote locations. This situation has changed somewhat due to 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, which overlooks the Mediterranean Sea, opened in April 2022. (Courtesy Kempinski)

That’s part of the reason the Israel Hotel Association has called for greater regulation and higher taxes on homes used as vacation rentals. The association argues that the rules of the game are not fair since most short-term rental operators do not pay commercial occupancy taxes, which allows them to charge lower rates.

In 2019, Tel Aviv vowed to look into restricting vacation properties, citing soaring numbers of apartments offered to tourists via Airbnb among others, even as tenants seeking to live in the city increasingly faced high prices. However, before the city could take action, the pandemic hit and the plan appears to have been shelved indefinitely.

Today, an estimated 9,000 properties are used for short-term rentals in the Tel Aviv area, where some 4 million people live. The year 2021 has seen more than 5,000 new construction sites housing in this overcrowded city. But the rents increased by 10% in the first two months of 2022 and continue to rise, making the most expensive city in the world even more expensive.

Nahum HaNavi Street in Tel Aviv. (Credit: Ricky Ben-David/Times of Israel)

Yet even though the average rent for a three-bedroom apartment in Tel Aviv outrun the 10,000 shekels a month, owners can still earn a lot more by renting out their property for the holidays.

A study conducted by the site Compare the Market on the average monthly cost of renting Airbnb accommodation in 90 tourist locations around the world showed that Tel Aviv had the fifth highest average monthly rate in the world, while Jerusalem came in 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 3% commission they have to pay to Airbnb does not eat into their profits at all.

Tel Aviv is not the only city to want to limit short-term rentals. In Paris, fines 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 cannot be rented for more than 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 stays on site, in which case a business license is required and operators must collect a tax 14% tenant occupancy.

Israel’s latest housing plan is due out this month. It could provide for a strict licensing regime, financial disincentives or an outright ban on short-term rentals in certain parts of the country.

Legislators may, however, prefer other potentially more effective measures.

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

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

But Boruch Levenson, senior accountant at Dray & Dray, suggested that the tax authorities have not been “really aggressive in the hunt for rental income”.

“There are other ways to discourage people from short-term renting by using other financial tools,” he told the Times of Israelsuggesting that such properties are subject to higher local property tax rates.

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

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

While seeking to free up housing in the center of the country, the government has also encouraged landlords in outlying areas to build separate units on their properties.

These small apartments are often ideal for young couples moving in, supporting population growth in towns and villages far from Tel Aviv or Jerusalem. The units are also ideal for short term vacation rental. Some can already be found on Airbnb.