Urban Renewal the Israeli Way

Urban renewal projects are one of the newest trends to hit the Israeli real estate scene.  As several major Israeli cities have no more room to grow, municipalities have allowed older buildings to be renovated, giving the city a “facelift” and enabling new apartments to be added to existing buildings.  Additionally, there is a concern that many buildings constructed before 1980 will be unable to withstand earthquakes. Very few apartment buildings are owned by a single entity, and since the majority of apartments within buildings are privately owned, the burden to renovate buildings in order to strengthen them in the event of a major earthquake primarily falls on the individual apartment owners.  Renovations are so costly that most people cannot afford them, yet despite the danger, there are very few national projects to strengthen buildings against earthquakes.  There are also many buildings built before the 1930s that have been declared historical buildings and slated for preservation.  The owners of these buildings may not demolish and rebuild the building, but must adhere to strict rules regarding the renovation and strengthening of the building.  Therefore the government and the municipalities have an interest in promoting urban renewal projects, such as “Tama 38”, “Pinui Binui” and preservation of historical buildings.

“Tama 38” is a national zoning plan whereby a contractor takes upon himself to renovate a building at his own expense.  In exchange for covering all costs of renovations, building permits and necessary taxes, the contractor has the right to build additional floors to the building and sell the apartments built on these floors.  The apartment owners get a modernized building, strengthened against earthquakes, as well as at least one room added to their apartment. In some cases porches, storage rooms, parking spaces even elevators may be added on as well, thus enhancing the building’s value. While this sounds like a win-win situation for all, very few projects of this sort have gotten off the ground.  Changes were needed in the various tax laws in order for these projects to be economically viable for contractors.  Also, the land law also needed to be revised to prevent a situation in which an entire project could be shelved due to the objections of even one apartment owner in a building. These changes have now been implemented, and now that the obstacles have been removed, hopefully we will see more “Tama 38” projects in the future.  Apartments will be added to the market and buildings will be safer as well.

“Pinui Binui” projects are ones in which apartment owners are temporarily evacuated from their apartments, so that the buildings may be demolished and rebuilt.  The owners then return to new apartments in the new building.  The contractor pays all costs for demolition, construction, relocating apartment owners and renting their temporary homes during construction.  In exchange, the contractor adds new apartments in the building which he can sell in order to make his profit.  As with “Tama 38”, the value of the apartments in the building is increased and the owners receive a new, larger and safer apartment than what they previously had.  This beautifies the city and adds more apartments to the market.

Why is the government getting involved in the addition of new apartments?  The answer is simple economics.  More new apartments on the real estate market means that apartment prices go down and this is what the government wants.  However,  prices are also influenced by factors such as location, interest rates, mortgage availability and unemployment as well as by supply and demand and the government would be well advised to give a thought to those factors if it wants to achieve its goal of lowering the prices of apartments.

The third urban renewal project is the preservation of historical buildings.  An historical building is one built before the 1930s that has special significance, for example an historical event took place or well-known figure resided there. The building may also have a unique architecture. Some buildings declared historical in Tel Aviv are the Bauhaus buildings, the home of poet Chaim Nachman Bialik and the home of Tel Aviv’s first mayor, Meir Dizengoff, where David Ben Gurion declared Israel’s statehood on May 14, 1948.   Once a building is declared historical, it must be renovated in accordance with municipality directives, in order to preserve the building in its original form.  These projects include strengthening the buildings against earthquakes and the construction of parking under the buildings.  While additional construction is not permitted in some cases, if additional floors can be built in such a way as to enhance or complement the original building it is allowed.  One such example is the building owned by early Zionist leader, Menachem Ussishkin on the corner of Allenby and Hayarkon Streets in Tel Aviv.  The cost of renovation falls on the owners of the building which is why many such buildings are currently for sale.  While these renovations are more costly than those of modern buildings, the end product is well worth the investment as the neighborhood is enhanced with a real “trendy factor,” which increases property values. More importantly, the renovations help preserve our national heritage.