Photo by
Sharon Leibel/TPS-IL on 22 September, 2024
Israel’s Property Tax Loopholes Fuel Crime and Decay, Report Warns
Jerusalem, 20 November, 2024 (TPS-IL) -- Israel has 2.5 million square meters of damaged and unfit properties, attracting crime and urban decay, the National Economic Council reported on Wednesday.
Restoration of these properties could generate 15,000–20,000 housing units and inject millions of shekels annually into local government coffers through property taxes, the NEC said.
According to the report, Israel’s tax framework incentivizes property owners to leave buildings unutilized. Under the law, owners are granted a full tax exemption for three years, followed by five years of minimal taxation. Afterward, a perpetual tax exemption applies.
“This structure creates a distortion,” the report said, “encouraging property owners to delay rehabilitating their assets.” In contrast, many countries deploy fines or nationalization to encourage faster reuse of properties.
Efforts to amend the legislation have stumbled due to inconsistent definitions of “damaged” properties and incomplete data collection by local authorities. Definitions and reporting standards vary widely across municipalities, hampering any unified national approach, the NEC said.
In response to Knesset calls for more comprehensive data, the NEC, alongside the Tax Authority and the Ministry of Justice, conducted detailed studies in Tel Aviv and Haifa.
The findings revealed that Tel Aviv has 119,000 square meters of unfit properties, with 33,000 square meters classified as residential. Haifa has 172,000 square meters of such properties, 42,000 of which are residential.
The annual tax revenue loss for these municipalities is estimated at 17 million shekels ($4.5 million) each.
The study also cross-referenced property ownership with income data. In Tel Aviv, private owners of unfit properties earn an average of 25,000 shekels ($6,600) monthly, while those in Haifa earn 20,000 shekels ($5,300). Corporate owners reported annual turnovers of 79 million shekels ($79.1 million) in Tel Aviv and 230 million shekels ($61.4 million) in Haifa.
“These figures underscore that most property owners are financially well-off, suggesting ample room to implement measures encouraging property reuse,” the NEC noted.
The report proposes three key reforms: establishing a legislative framework with clear criteria to assess property usability and ensure consistency across municipalities; implementing comprehensive annual reporting by local authorities to document details on unfit properties, such as size, ownership, and tax exemption periods, enabling the creation of a national database to support research and redevelopment efforts; and restructuring the property tax scheme to allow three years of full exemption, two years of minimal taxation, and then the application of full property taxes.
The NEC asserts that these changes could significantly bolster housing availability and enhance municipal revenues. By facilitating property reuse, the reforms could also improve urban aesthetics and reduce crime in neglected areas.
“The proposed policy balances economic incentives with fairness,” the NEC said. “It ensures property owners contribute to local development while unlocking the potential of these neglected assets.”
