What if I told you that nearly half of the price you pay for a new apartment in Israel doesn’t come from the building, the land, or the view, but from a mountain of invisible costs buried deep in government red tape?
Not a tax you see on paper, not a fee listed in your contract, but something far more slippery. Something that sneaks into the price tag before you even walk through the front door. Economists call it the “regulatory tax,” but most Israelis don’t even know it exists.
And here’s the real kicker, this hidden cost can make up almost 50 percent of your home’s price.
Think about that for a second. You save for years, take out a mortgage, maybe get help from your parents, and still, a huge chunk of what you pay isn’t for the apartment itself. It’s for bureaucracy, for delay, for inefficiency, and yes, for policies that were supposed to help but now hurt.
In a country where housing prices have doubled, and in some cities tripled, over the past decade, this isn’t just a detail, it’s the story.
So what exactly is this regulatory tax? Where does it come from? How does it affect regular homebuyers, young families, and developers trying to build?
And more importantly, can it be fixed?
Let’s pull back the curtain and walk you through the entire picture, from the cost of concrete to the permit that never seems to come, from land policies in Tel Aviv to planning headaches in Be’er Sheva, to finally understand why buying a home in Israel feels like chasing a mirage.
What Exactly Is the “Regulatory Tax,” and Why Should You Care?
It sounds like one of those abstract economic terms only academics throw around, but once you understand it, you’ll realize it’s the silent price tag inflating nearly every apartment in Israel.
The regulatory tax isn’t a tax in the way you pay income tax or VAT. You won’t find it on your closing documents. Instead, it’s the total cost that comes from all the rules, delays, limitations, and red tape involved in getting a new apartment built in this country.
Imagine this, let’s say it costs ₪1.2 million to physically build an apartment, concrete, steel, labor, windows, all of it. But by the time it’s actually approved, constructed, and sold, the price is suddenly ₪2.3 million. That ₪1.1 million gap? That’s the regulatory tax. It’s not magic. It’s not markup greed. It’s layers and layers of rules, fees, restrictions, and time that cost real money.
This hidden cost includes:
- Building limits like how high or how dense a project can be
- Years of delays just to get permits or planning approval
- Endless fees to the city, the government, and utility companies
- Expensive obligations like infrastructure upgrades and parking minimums
- Complicated rules that stop developers from scaling efficiently
And here’s the shocking part, studies from Israeli economists have found that this invisible load adds up to as much as 48 percent of the final price of a home.
That’s not a typo, almost half.
And the closer you get to places like Tel Aviv or Jerusalem, the worse it gets. These are the cities where demand is sky-high, but the ability to build is crushed under layers of outdated planning codes and political hesitation.
So no, the high price of Israeli real estate isn’t just because of greedy developers or foreign buyers. A huge part of it comes from the very system designed to manage housing in the first place.
Let’s now break down exactly what makes up this regulatory tax, starting with the biggest player of all.
When the Government Owns the Land, You Pay the Price
Here’s something most people don’t realize, over 90 percent of the land in Israel is owned by the government.
Not just managed, owned.
That means almost every piece of land that eventually becomes a housing project, from apartment towers in Tel Aviv to new suburbs in the north, first passes through the hands of a government agency called the Israel Land Authority, or ILA for short.
Now imagine what happens when one body controls almost all the supply. It becomes the ultimate gatekeeper. It decides what land gets sold, when, how much, to whom, and under what terms. And when supply is limited and demand is massive, prices skyrocket. That’s Economics 101.
But it’s more than just tight supply. The way the government releases land is slow, cautious, and often decades behind demand. Especially in central Israel, the areas where people actually want to live, near jobs, schools, and transit, land is released like drops from a faucet, not like water from a hose.
Developers end up competing fiercely for tiny slices of state land, driving up prices at the bidding stage before they’ve even poured a drop of concrete. And guess who ends up paying for that premium? You, the buyer.
This bottleneck also creates strange incentives. The government makes billions by selling land at high prices, which means it benefits financially from limited supply. That’s a conflict of interest hiding in plain sight. On one hand, ministries promise affordable housing. On the other hand, state coffers swell from high land revenues.
It gets even messier.
There’s a nationwide zoning policy called Tama 35, designed to spread development toward the periphery, the north and south, and limit construction in the center. Sounds good in theory. But in practice, it blocks growth where demand is strongest, inflating prices in Tel Aviv and Gush Dan while thousands of units sit unsold in distant areas people can’t commute from.
And if you think private land avoids these issues, think again. Even privately-owned land is subject to the same bureaucracy and city-level planning restrictions. Plus, when a plot is rezoned or allowed to be built higher, cities charge a betterment tax, often 50 percent of the new land value, just to approve it.
So whether the land is public or private, it’s still trapped in a system that drives up cost before a single brick is laid.
This is the foundation, literally, of the regulatory tax. And it’s only the beginning.
Why Building Takes Forever, and Costs Even More
You’ve got the land. You’ve got the plan. You’re ready to build.
Now wait, for years.
In Israel, getting from blueprint to bulldozer is like running a marathon through molasses. On average, it takes more than a decade to go from the first planning submission to people actually moving into finished apartments. And only a tiny slice of that time is spent on actual construction.
The rest? Bureaucracy.
To build anything, even a basic apartment building, developers have to pass through multiple layers of planning committees, local, district, sometimes even national. Each committee has its own forms, its own deadlines, its own staff, and its own delays.
But the delays don’t stop there.
Let’s say your project finally gets approved. Before you can start building, you need permits. And those permits are tied to infrastructure, is there a working sewer line? Has the road been upgraded? Are there enough schools and green space nearby?
If the answer is no, the city hits pause. And guess who has to pay to fix it? The developer. Which means, again, the buyer.
And then come the objections.
Neighbors, environmental groups, or just about anyone can file appeals. Some are valid. Some are just tactics to stall or force changes. Either way, they can delay a project for months or years. And while the lawyers argue, the loan interest keeps ticking.
Time isn’t just frustrating in this process, it’s expensive. Every month of delay means developers pay more to the banks, more for legal teams, and more just to keep the lights on. Those costs get baked into the price of the apartment.
You know how Israelis often say “hakol meshubash”? This is that, except it’s costing families hundreds of thousands of shekels per home.
Now, to be fair, reforms have been attempted. The government created fast-track committees like Vatmal to speed up large projects. There are pilot programs for digital permitting. But the system remains clogged. And even when a plan finally gets through, the time lost has already inflated the cost beyond recognition.
In most Western countries, getting a building permit takes a few months. In Israel, it often takes a few years, sometimes more than five. And for bigger projects, especially urban renewal, it’s not uncommon for the entire timeline to stretch past ten or even fifteen years.
So yes, we have a housing shortage. But it’s not because people don’t want to build. It’s because the system makes it nearly impossible to do it on time and on budget.
This is how the regulatory tax grows without anyone noticing. Not through one big policy mistake, but through a thousand tiny obstacles that slow everything down and make it all cost more.
The Fees You Never See, But Always Pay
So you’ve made it through the planning maze. The building is approved. The paperwork is done. You’re finally ready to start construction.
Not so fast.
Before a single shovel hits the ground, developers face a tidal wave of hidden costs, all tied to fees, taxes, and levies from both national and municipal governments. These aren’t headline taxes like income tax or VAT on your groceries. These are deeply embedded charges that quietly inflate the price of every apartment built in Israel.
Let’s break it down.
Value-Added Tax (VAT)
When a developer sells you a brand-new apartment, they have to pay 18% VAT on that sale. Yes, eighteen percent. And no, that’s not negotiable. It’s a flat percentage of the final sale price.
For example, if an apartment sells for ₪2 million, roughly ₪360,000 of that is VAT. That’s more than a year’s salary for many people, paid straight to the tax authority. And while it’s the developer who officially pays it, it’s always included in the final price you pay. So yes, you’re footing the bill.
Development Levies and Permit Fees
Municipalities don’t just let developers build for free. They charge for everything, roads, sidewalks, lighting, sewer lines, parks, and more.
These development levies can range anywhere from ₪100,000 to ₪300,000 per unit, depending on the city and the size of the project. Add to that building permit fees, which are based on square meters, and you’re looking at tens of thousands more just for permission to build.
And these costs aren’t optional. They’re a condition for the permit. No payment, no progress.
Betterment Tax (Hetel Hashbacha)
If land is rezoned or granted extra building rights, say, from 5 floors to 10, the municipality charges a betterment levy, usually 50% of the land’s increased value.
It’s like this, if a plot becomes more valuable because the city changed its zoning laws, they take half the gain. The developer still has to buy the land and build, but now they’ve got a new tax bill too. Guess where that ends up? Right, in your apartment price.
Utility Hookup Fees
Once the building is done, it needs to be connected to water, electricity, gas, and sewage. These aren’t free either. Utility companies often charge tens of thousands of shekels per unit to connect a new building to their networks, especially if the area needs upgrades to handle the extra demand.
Again, who pays? You do.
Property Taxes and Municipal Incentives
Here’s a wild twist.
In Israel, municipalities lose money on new apartments. That’s because the property tax, called Arnona, collected from residential units doesn’t fully cover the cost of services like garbage collection, schools, and parks. But Arnona from offices or commercial spaces is far more profitable.
So what happens?
Cities drag their feet on residential approvals and prioritize malls and office towers instead. Why build homes that cost them money when they can build projects that pay?
This creates another kind of hidden cost, fewer apartments get approved, which keeps supply low and prices high.
So when you add it all up, VAT, levies, betterment tax, utility hookups, permit fees, and city incentives, we’re talking hundreds of thousands of shekels per unit, long before profit is even factored in.
And none of this shows up as a line item when you buy your home. It’s all buried in the total cost.
The Final Layer, Building Costs That Keep Climbing
Even after clearing land hurdles, surviving the permit jungle, and swallowing all the fees, developers still have to build. And here, too, costs keep rising, not because of greed, but because of labor shortages, material prices, and regulations that keep tightening.
Israel’s construction sector depends heavily on foreign workers, especially Palestinians and overseas crews from places like China and Moldova. When security tensions spike or political changes hit, that labor force shrinks, and wages go up. Fewer workers means slower construction, which means higher costs.
Materials are also expensive. Cement, steel, glass, and insulation have all jumped in price, partly due to global supply chain chaos and partly due to local demand.
And then there’s regulation again.
Every new apartment must include a safe room, called a Mamad, a reinforced concrete shelter built into the unit. It’s essential for life in Israel, but it adds significant cost to every apartment.
There are also energy rules, fire codes, accessibility mandates, and environmental standards that weren’t there 15 years ago. Most of these are important and necessary, but they still mean more money per square meter.
Add in a requirement for underground parking, public amenities like playgrounds or schools, and guess what, the final price keeps climbing.
So What Does All This Mean?
It means the Israeli housing crisis isn’t just about interest rates, or population growth, or investors buying extra apartments. Those things matter, but they’re not the root cause.
The deeper issue is structural, and it’s hidden in plain sight. A massive, silent cost is baked into nearly every apartment, a cost driven by government processes, delayed approvals, state-controlled land, overcomplicated zoning, and bureaucratic inertia.
That’s the regulatory tax, and it’s not a metaphor. It’s real, it’s measurable, and according to top researchers, it can be as high as 48 percent of what you pay for a new home.
This isn’t sustainable.
Young families are priced out. Middle-class buyers are pushed to the edges. Renters are stuck with no path to ownership. Developers build slower, or stop altogether. And Israel, a country that once prided itself on building a home for every Jew, now struggles to build enough homes at all.
So What Can Be Done?
The good news, this is fixable.
Cut planning times. Digitize permits. Release more land, especially in the center. Rebalance city incentives so they don’t fear residential growth. Reduce duplicate fees and streamline approvals. Fund infrastructure upfront instead of offloading it to builders. And most of all, treat housing like the national priority it is.
This isn’t about ideology. It’s about practicality. Because if we don’t tackle the real source of the problem, no amount of tax tweaks or one-off subsidies will solve it.
TL,DR, Too Long, Didn’t Read
- The price of a new apartment in Israel includes a massive “regulatory tax,” an invisible cost from red tape, delays, fees, and policy
- Land is tightly controlled by the state, and released too slowly, driving prices up before building begins
- Permitting can take over a decade, while developers bleed cash waiting for approvals
- Fees like VAT, development levies, and betterment taxes quietly add hundreds of thousands of shekels per unit
- Labor shortages, rising material costs, and strict building codes increase prices even further
- All combined, these hidden factors can make up almost half the price of a home
