טכניון מכון טכנולוגי לישראל
הטכניון מכון טכנולוגי לישראל - בית הספר ללימודי מוסמכים  
M.Sc Thesis
M.Sc StudentFridberg Ofer
SubjectPrivate Rental Housing in Israel - Between Economic
Feasibility and Social Need
DepartmentDepartment of Architecture and Town Planning
Supervisor Professor Daniel Czamanski


Abstract

This research focuses on two main issues that are recurrent throughout the entire work: The social need for housing, in particular for rental housing, and the financial feasibility of private investment in rental housing or construction of rental housing.

Only few empirical studies have evaluated the financial feasibility of rental housing investment by private entrepreneurs. Accordingly, these studies considered theoretical projects based on general data and basic assumptions that often have little in common with specific, real projects.

For the purpose of pursuing this study, a number of projects based on rental housing in Israel were selected. A computer-based economic feasibility model was created, allowing accurate evaluation of projects, their cash flow and the expected Net Present Value of the investment. The model was adjusted to the specific conditions of the case studies. The empirical study focused on examining and calculating the cash flow in the "Lev Hapark" project, that was managed according to all the requirements of the legal amendment

Analysis of the results obtained in this study demonstrates a significant profit. The portions of housing for sale and for rent in the "Lev Hapark" project were financed separately, with the expenses for the sale part being covered by sales up front The rental part achieved a Net Present Value of 2,097,989$ after six years. The results include discounting, after the loan amortization. Several scenarios were run to analyze the project economic sensitivity. Analyses of the scenarios results demonstrate the problem of risk and certainty that raised in the past and in this research, concerning investments in rental housing. The results indicate a high risk level in this market, even in its most successful projects.

In order to demonstrate the possibilities of encouraging rental housing, a basic method for decision-makers was developed. This method is based on the literature survey, the feasibility model results and information from interviews with entrepreneurs and specialists, conducted especially for this study.

The principal conclusions of the research are:

As long as there is no certainty about the feasibility of rental housing projects, and given other and better possibilities of real estate investment (minimum risk, maximum certainty) in the market, the private market will not build large scale rental housing.

It seem that there is a need for government intervention in the housing market in Israel. The current atmosphere of privatization in Israel, makes direct intervention of the government in rental housing building appear unlikely, thus indirect means' seem to provide the answer to the problem. Such means include encouragement for owners of rental apartments which are already in the market, local building and permit benefits and encouragement for self-help building associations.