Full Breakdown
Challenges in Israel's Long-Term Rental Market: Financing Hurdles
1/5/2026, 9:15:30 PM
Overview of the Long-Term Rental Market
For over a decade, Israel has aimed to promote a robust long-term rental market, recognizing the pressing need for affordable housing. Despite strong demand, the market has struggled to gain traction due to persistent financing challenges. Recently, a tender for long-term rentals in Yavne, which includes 200 housing units, highlighted these ongoing issues. The winning bid was submitted by Y.H. Dimri, amounting to 67 million NIS, but the broader context reveals systemic problems in the financing structure for rental projects.
Financing Challenges and Market Stagnation
Developers face significant obstacles in securing financing for long-term rental projects. According to Uri Paz, CEO of Michlol Financing, the financial model currently in place is inadequate. Rental yields in Israel are approximately three percent, which is insufficient to cover principal and interest payments on bank loans during the stabilization period after construction. This situation creates a closed loop: without financing, construction cannot proceed, and without completed projects, financing remains elusive.
The Finance Ministry's recent draft Arrangements Law proposed reducing the percentage of long-term rental apartments required in new residential complexes, a move that some interpret as detrimental to supply. However, it also underscores the uncomfortable reality that many rental projects are not economically viable under existing conditions.
Innovative Solutions: Establishing a Dedicated Fund
In response to these challenges, Michlol Financing has established a dedicated fund for long-term rental housing, totaling approximately 400 million NIS. This fund aims to bridge the gap between the high equity requirements imposed by banks and the low yields typical of Israel's rental market. By enabling developers to operate with equity levels similar to those used in traditional development, the fund seeks to revitalize stalled projects and foster a more sustainable rental market.
Paz emphasizes that the key to a successful long-term rental market lies not only in regulatory measures but also in creating a stable financial infrastructure. He advocates for a model that has proven effective in other countries, suggesting that similar approaches can be adapted for Israel.
Broader Implications and Future Directions
The establishment of this fund represents a significant shift in how developers, banks, and institutional investors can collaborate to address the housing crisis in Israel. By aligning economic and social interests, this partnership aims to create a viable long-term rental market that can serve diverse segments of Israeli society.
Official Statements & Responses
Uri Paz stated, “Long-term rental housing is a national interest. It is meant to provide a solution for broad segments of Israeli society that cannot afford to buy a home.” He further noted, “If the state wants a market of tens of thousands of rental units, it must ensure a stable and sustainable financial infrastructure.”
Verbatim Quotes
- “Developers who want to build rental-only projects find themselves between a rock and a hard place,” — Uri Paz, CEO of Michlol Financing
- “It is a fundamental financing problem. And as long as we do not solve it, even the best policy will remain only an intention.” — Uri Paz
- “According to Paz, “The fund was created precisely for the failure point that prevents the market from advancing: The gap between the banks’ high equity requirements and the low yields that characterize Israel’s rental market.” — Uri Paz
Conclusion
The future of Israel's long-term rental market hinges on overcoming financing obstacles. The newly established fund represents a proactive step toward creating a sustainable rental housing solution, but ongoing collaboration among stakeholders will be essential to realize the national goal of a thriving rental market.
