Introduction
Israel’s real estate market presents a fascinating paradox in times of conflict. While conventional wisdom suggests that war brings economic downturn and falling property values, Israel’s housing market has demonstrated remarkable resilience and, in many cases, continued growth despite ongoing hostilities. This analysis examines how the recent conflicts have influenced housing prices across different regions of Israel, explores the underlying factors driving these trends, and considers what the future might hold for Israel’s property market.
The war that began in October 2023, when Hamas terrorists invaded Israel, killing 1,200 people and kidnapping 251 to the Gaza Strip, created unprecedented security challenges. Yet contrary to economic expectations, this crisis has not triggered the anticipated real estate collapse. Instead, it has highlighted the unique factors that continue to drive Israel’s housing market even during periods of intense conflict.
The Surprising Surge: War and Rising Prices
In the aftermath of the Hamas attacks of October 7, 2023, many expected Israel’s housing market to experience a significant downturn. Instead, the market has shown extraordinary resilience. Data from the Israel Central Bureau of Statistics reveals that prices have continued to rise by six to seven percent per year despite the ongoing conflict. Throughout 2024, this trend persisted, with home prices rising about 8 percent during a year defined by a multifront war and general uncertainty.
The numbers tell a compelling story. According to the Central Bureau of Statistics, from 2022 to 2023, house prices rose by nearly 23% (13% when adjusted for inflation), even as the Israeli economy expanded by a modest 2% during 2023—a sharp slowdown from robust growth of 6.5% in 2022. Then in Q1 2024, the country’s real GDP contracted by 1.24% from the same period last year, following a year-on-year decline of 4% in Q4 2023. Yet despite this economic contraction, housing prices continued their upward trajectory.
Monthly data further illustrates this resilience: home prices in February and March 2024 rose 0.9% compared to the two previous months of the year. Prices have continuously risen since November 2023 after declining for most of the previous year. By early 2025, the housing market was showing even stronger signs of recovery, with January–February prices climbing another 0.9%, with the steepest monthly increases recorded in the North (1.8%) and Tel Aviv (1.5%) districts.
This counterintuitive growth pattern forces us to examine what factors are driving housing demand even during periods of heightened security concerns.
Regional Variations in Market Performance
The impact of war on housing prices has not been uniform across all regions of Israel, creating a complex patchwork of market conditions that reflect specific local security situations, demographics, and economic factors:
Tel Aviv and Central Israel
Despite being the country’s most expensive real estate market, Tel Aviv has shown remarkable resilience. The average price of a home in Tel Aviv in the first quarter of 2024 reached NIS 4.14 million ($1.2 million), maintaining its position as the premium real estate market in Israel. When comparing prices in November-December 2023 to the same period a year earlier, Tel Aviv did experience a 4.4% price decrease—the most significant adjustment of any major city—yet this represented a relatively minor correction given the scale of the conflict.
The central region continues to attract investment due to its economic strength and relative security compared to border areas. Historical data shows this resilience is consistent with past patterns—for instance, during previous conflicts, Tel Aviv property values dipped temporarily but recovered quickly.
The city remains attractive to technology industry investment and other sectors, leading to price increases rather than declines during the conflict. This resilience has led analysts to observe that “even amidst the ongoing conflict, the city continues to attract investment from the technology industry and other sectors.” Tel Aviv’s importance as Israel’s economic engine has insulated it from the most severe impacts of the security situation.
Jerusalem
Jerusalem has displayed mixed trends, with prices declining by 1.3 percent in the November-December 2023 period compared to October-November 2023. However, this represents a relatively minor adjustment considering the scale of the conflict. When compared year-over-year to November-December 2022, prices in Jerusalem also fell by 1.3%.
Certain neighborhoods remain highly sought after, particularly among foreign buyers and the religious community. Areas like Arnona, Mekor Chaim, and Talpiot have gained popularity among English-speaking immigrants, while traditional hotspots like the Old City maintain their premium status despite security concerns.
A significant challenge in Jerusalem is the lack of adequate bomb shelters and safe rooms, unlike many other parts of Israel. Reports indicate that “Jerusalem is sorely lacking in this. Despite the ongoing construction boom throughout the city, many buildings are very old,” making security a significant consideration in housing decisions.
Northern and Southern Regions
The regions closest to conflict zones initially saw the most significant impact. Markets in the north and south were “pretty much frozen” during the height of hostilities, with transactions plummeting. Real estate data showed dramatic declines—in October 2023, for example, the sale of new homes stood at 930, compared to 2,004 homes sold in the same month of the previous year, marking a decline of over 50%.
However, as 2025 approached, real estate experts predicted that “demand is going to return in the north and the south” as ceasefire negotiations progressed. This recovery was already becoming evident in early 2025 data, with the North district showing the steepest monthly increase (1.8%) in January-February 2025.
The affordability of these regions is a key factor in their potential recovery. Cities like Beer Sheva had the cheapest housing in Israel, with an average price of NIS 1,031,800 ($331,990) in recent data, making these areas attractive as rebuilding occurs and security improves.
Key Factors Influencing Housing Prices During Conflict
Several interconnected factors help explain why Israel’s housing market has remained strong despite security concerns:
1. Chronic Housing Shortage
The key problem driving housing prices is “a chronic shortage of housing units, which existed long before the war.” Israel’s planning system has struggled for years to produce sufficient housing to meet demand, creating an underlying scarcity that persists regardless of security situation.
This shortage has been exacerbated by Israel’s booming population, among the highest in the developed world. According to the Central Bureau of Statistics, Israel’s population grew by 1.6% in 2023 alone. New construction has not kept pace with this demographic pressure. Dwelling completions fell by 7% year-over-year to 48,491 units during 2020, the biggest decline since 2003. Dwelling starts also fell slightly by 1.2% in 2020 to 52,844 units, following declines in previous years.
2. Labor Shortages in Construction
The war has exacerbated existing supply constraints. Since the war’s start, approximately 85,000 Palestinian workers have “virtually disappeared from Israel’s construction industry” due to security concerns, causing building sites to shut down completely. One developer described the conflict as bringing “a 500-pound hammer down on the construction sector,” with building sites shuttered completely for a month at the start of the war.
This disruption has had significant regional variations. “There are building sites in the north and the south of Israel in which productivity is just 20% to 30% because foreign workers tend to stay in central Israel where wages are higher.” The Israeli government has attempted to address this shortage by inviting thousands of Indian construction workers to Israel, but rebuilding capacity will take time.
3. Increased Demand for Secure Housing
The conflict has increased demand for specific types of housing features. During the war, the need for reinforced security rooms in homes has increased significantly, and this can only be provided by new and second-hand apartments built in the last 20 years. Properties with these features command premium prices.
In Israel, following the first Gulf War, a law was passed requiring all new or extended homes and apartments to include a fortified room as opposed to an underground shelter. These “mamad” rooms (the Hebrew acronym for “residential protected space”) have become essential features for Israeli homebuyers, especially during times of conflict.
The importance of these security features cannot be overstated. As one expert noted, “Those [safe] rooms save lives. We’ve seen it in this war.” The safe rooms are designed to withstand a ton of explosives going off at a range of 15 meters, and are air-tight with filtered ventilation in case of chemical or biological attack. Since the October 7 attack, when Israelis were attacked in their homes, the heavy blast doors on new safe rooms are now lockable from the inside.
4. Foreign Investment and Immigration
The Hamas October 7, 2023, attack and the rise in global antisemitism are fueling increased interest in Israeli real estate among overseas clients. This trend has contributed to market stability and growth in certain areas, with foreign buyers viewing Israeli real estate as both an investment and a potential safe haven.
The mortgage market reflects this international interest, with one expert noting “a significant growth in the number of mortgages granted to foreign residents – an increase of approximately 37% compared to 2023.” Many Jews see purchasing Israeli real estate as a form of “insurance” because they can have a refuge in case political conflicts and rising anti-Semitism in their own countries reach a critical point.
Cities like Jerusalem, Tel Aviv, Netanya, Ra’anana, Ramat Beit Shemesh, and Modiin are particularly popular among foreign buyers, especially English-speaking immigrants. Foreign buyers can receive up to 50% financing, but if they make Aliyah (immigrate to Israel), they can receive up to 75% financing for a first home, creating additional incentives for overseas investment.
5. Interest Rates and Economic Factors
The ongoing war has led to a rise in Israel’s risk premium, which has caused a significant downgrade in the country’s credit rating, contributing to the high cost of housing as the central bank keeps interest rates high to combat inflation.
In November 2021, the Bank of Israel kept its key rate unchanged at a record low of 0.1%, following a 15-basis point rate cut in April 2020 to cushion the economic impact of the coronavirus outbreak. However, more recent rate adjustments to fight inflation have impacted mortgage costs. Inflation for the 12 months through November 2023 was 3.4% and was expected to average 2.6% for 2025.
Notable recent policy changes affecting the market include higher capital gains taxes on property sales. Starting in 2025, an additional 2% surtax is being imposed on capital gains for high-income individuals. Additionally, the government has frozen purchase tax brackets for 2025, effectively increasing taxes for some buyers as brackets are not adjusted for inflation.
The Long-Term Outlook
Looking ahead, several factors will likely influence the trajectory of Israel’s housing market:
Market Resilience and Post-War Growth
Historical patterns suggest that Israel’s housing market has the capacity to rebound quickly after conflicts. Israel’s housing market has been unscathed by previous regional instability, including the Syrian civil war. The market has demonstrated remarkable historical resilience—house prices have risen by 118% (82% in real terms) from 2006 to 2017, despite multiple conflicts during this period.
Once the Israel-Hamas conflict approaches its conclusion and tensions in the Israel-Iran region begin to ease, Tel Aviv’s real estate market is predicted to experience “a renewed and even higher peak of development.” This resilience suggests that the global market and international community maintain significant confidence in Israel’s long-term prospects.
Viewing longer historical cycles, we see that when prices fell sharply in Jerusalem (-20.2%) and Tel Aviv (-17.4%) during 2018-19, nationwide house prices continued to rise by 7% as the decline in the two major cities was offset by continued price growth in other districts. Despite the COVID-19 pandemic, nationwide house prices grew by another 5.5% during 2020, demonstrating the market’s ability to withstand multiple types of crises.
Continued Supply Challenges
The construction labor shortage will remain a significant challenge. The Israeli government has taken steps to address this by inviting thousands of Indian construction workers to Israel, but rebuilding capacity will take time. Images of Indian builders working on Tel Aviv construction sites in December 2024 have become increasingly common as the sector adapts.
Industry experts have warned that “homes, schools, public buildings, all depend on the construction industry—which is paralyzed,” raising critical questions about who will “rebuild the north and the south of the country that have been destroyed by the war.” The construction industry brings in billions of shekels a year to state coffers, making its recovery essential for broader economic stability.
Looking at construction data, dwelling completions fell by another 11.7% year-over-year to 22,235 units in the first half of 2021, according to the Central Bureau of Statistics. Likewise, dwelling starts dropped 2.7% year-over-year to 25,567 units. With conflict further disrupting this sector, housing shortages will likely persist for years.
Shifting Regional Demands
As security situations evolve, so will regional demand patterns. Real estate experts expect “housing prices to continue to rise in 2025” with predictions ranging from moderate increases to spikes “as much as 10-15% around the country” as markets in previously impacted areas recover.
Not all experts agree on the pace of this recovery. While some predict dramatic price increases, others forecast more modest growth. One Jerusalem-based expert expects “prices in Jerusalem to go up twice as much as inflation,” estimating that “if inflation rises 3% for the year, prices will rise 6%.”
Areas becoming increasingly popular for “Anglo” (English-speaking) immigrants include emerging locations like Katzrin, Nahariya, Pardes Hanna, Karnei Gat, Harish, Givat Olga, Hadera, Ma’alot and Karmiel. Other areas growing rapidly include Afula, yishuvim (towns) and moshavim such as Yad Binyamin, Hashmonaim and Neve Michael. Coastal cities like Hadera, Ashkelon, and Jaffa are also expected to “grow substantially” as they offer lower housing costs compared to Tel Aviv.
Recent transaction data already shows recovery underway—according to the Central Bureau of Statistics, approximately 21,580 apartments were sold between December 2023 and February 2024, compared to about a fifth of that volume between September and November 2023, indicating buyers are returning to the market despite ongoing security concerns.
Security Features and Home Values
A notable development has been the increased emphasis on security features in residential properties:
Bomb Shelters and Protected Spaces
Since the October 7 massacre, hundreds of thousands of Israelis have been recognized as lacking “the basic protection of a standard fortified safe room,” forcing them to “find the closest public shelter or stairwell” during air raid sirens.
The situation is particularly challenging in Jerusalem, where many public shelters are inadequate or inaccessible. Out of all the public bomb shelters in the Beit Hakerem neighborhood, 50% are listed on the municipality website as being temporarily inactive. This is also the case for 40% of all public shelters in Baka, 33% in Kiryat Moshe, and 100% in Musrara and Shuafat. In some areas, residents found public shelters locked or being used as warehouses.
According to official estimates, about 55 percent of Israeli households do not have safe rooms, due to either cost, lack of space, fatalism, or obstinacy. However, the recent conflict has changed attitudes, with the Home Front Command slashing the turnaround time for building permits to 14 days and processing about 4,500 applications in seven months.
The evolution of Israel’s shelter strategy reflects changing security realities. In 1951, three years after the State of Israel declared its independence, the country instituted a civil defense law requiring all homes, residential buildings, and offices to be equipped with shelters or “safe rooms.” The concept evolved significantly after the First Gulf War, when the warning time for incoming missiles was shortened and there was a need for fast access to shelter. The move from subterranean bomb shelters to more elevated protected spaces was motivated by the possibility of chemical weapons use.
Accessibility remains a significant concern. Many elderly residents or those with physical disabilities face particular challenges, as one resident noted: “Our safe room is in the basement, down a lot of stairs, which I can’t manage. So, I stay home.” This accessibility issue disproportionately affects residents of older, more affordable buildings, which often lack elevators.
Premium on Protected Properties
Properties with built-in security features now command significant premiums. The cost of building a safe room varies approximately between $30,000 and $56,000, but this investment can substantially increase property values and marketability.
The technical specifications for these rooms are rigorous. The “Merkhav Mugan” (protected space) can withstand blast and shrapnel from conventional weapons and offers protection against chemical and biological weapons. They come in several categories:
- Merkhav Mugan Dirati (ממ״ד, “Mamad”) – installed in residential apartments and private houses
- Merkhav Mugan Komati (ממ״ק) – common floor space in apartment buildings without individual safe rooms
- Merkhav Mugan Mosadi (ממ״מ) – installed in every public structure
These protective spaces have become selling points in real estate listings. In the old north of Tel Aviv, for example, a renovated three-room apartment on Frishman Street advertised its safe room as a key feature alongside its balconies. Similarly, renovation projects increasingly include the addition of safe rooms to increase property appeal and value.
The impact on construction costs has been significant. Beyond the direct expense of building safe rooms, developers must navigate stricter building codes and increased material costs. However, the premium buyers are willing to pay for these security features often exceeds the additional construction expenses, making them worthwhile investments from both safety and financial perspectives.
Conclusion
Israel’s housing market demonstrates a complex relationship with conflict that defies simple explanation. While war creates immediate challenges and uncertainty, the combination of structural supply limitations, demographic pressures, security concerns, and foreign investment has maintained and even increased housing prices during periods of hostility.
For potential homebuyers and investors, understanding these dynamics is crucial. Properties with security features in stable regions continue to hold their value, while areas closer to conflict zones may present both higher risks and potential for stronger recovery once security improves.
As Israel navigates its security challenges, its housing market will likely continue to reflect both the immediate concerns of conflict and the long-term fundamentals of a growing population in a country with limited land resources. This resilience speaks to the broader Israeli economy’s ability to function and even grow despite adversity – a pattern that has characterized the nation throughout its modern history.
