Opinion: In Favor of Subdividing Apartments

Increasing the supply of inexpensive apartments for young couples is the most important means of lowering housing prices; subdividing large apartments into suitably sized homes is the fastest, most readily available way to increase that supply!
Given the cost of living and housing shortage affecting most people, especially young couples, local authorities should be required to initiate plans permitting apartment subdivisions in high-demand areas under clear, equal and transparent criteria. New construction generally offers many rooms, excluding young couples from new neighborhoods. They must be able to rent in modern neighborhoods with new infrastructure. Municipal plans are the professional, inexpensive and responsible way to regulate subdivisions for rental to young couples: only this approach can keep the process relatively affordable, orderly and supervised, without damaging infrastructure, neighbors or local parking arrangements.
The housing shortage among young people warrants requiring local authorities to prepare plans for dividing apartments into smaller units in suitable areas, identified in advance by city engineers according to population-growth targets, and to establish clear criteria. Authorities have the professional tools and staff to prepare plans that shorten application processing, reduce unfeasible applications and save time spent on nonconforming-use requests, quickly easing shortages for young people and students in high-demand areas.
Alongside the budgetary burden on authorities, subdivisions generally justify charging the developer a betterment levy. A strategic subdivision plan could therefore provide substantial municipal revenue to help supply services and infrastructure to the additional young residents. This aligns with every authority’s desire to increase its young population. Densely populated cities should permit subdivisions, especially of large apartments bought as rental investments.
In practice, Interior and Justice Ministry directives have intensified enforcement and penalties, leading to an estimated decline of tens of percent in subdivisions in large cities. Courts hearing construction and nonconforming-use offenses may now impose fines of up to four times the damage caused or economic benefit obtained, or a fine under section 219 of the Planning and Building Law, whichever is higher. It has been held that “in unlawful construction, the benefit obtained from the offense is the property’s enhancement in value. This concerns the property’s value regardless of whether the enhancement was fully realized through sale or partially realized through rental. The unlawful construction increased its value, and this increase is the benefit obtained through the offense. Valuing the property using an income-capitalization method is permissible when determining the increase resulting from unlawful construction.” Applying this case law has produced fines potentially reaching hundreds of thousands of shekels.
An important step came in late 2011 with a temporary provision, valid for five years, intended to permit lawful subdivision of large apartments. It reflected the Israeli government’s understanding that the housing shortage and severe lack of small rental apartments required immediate solutions, since flooding the market with building land offers no immediate answer. Moreover, tens of thousands of large apartments currently stand unrented, partly because tenants cannot afford their running costs.
Despite this welcome step, the provision created substantial barriers. Each unit must be at least 30 square meters; applications require signatures from all land-rights holders and, in a condominium, all apartment owners. Additional apartments may not exceed 30% of the maximum approved for the building or the existing number, whichever is lower. Where there are fewer than three apartments, one additional unit is permitted. The committee engineer must also confirm that the plan addresses needs created by the additional apartments and complies with the local committee’s decision.
Unfortunately, the temporary provision did not improve matters. It created uncertainty for young couples and students, added bureaucracy and planning barriers, and effectively reduced subdivisions. Local committees take inconsistent approaches. Major obstacles include dependence on other owners, who can frustrate subdivision through unreasonable refusal, requirements for additional parking and installation of protected rooms or protected floor spaces for the new units. Advance preparation by planning committees could minimize harm to other owners’ quality of life and guide applicants toward appropriate buildings and neighborhoods.
In practice, the provision is therefore not being implemented, while pursuit of unlawful subdivisions continues. Courts are full of indictments and planning committees take a harsh approach. The provision’s purpose has not reached the committees, which can and must develop policies enabling thousands of suitable, affordable rental apartments for young people and students.
The author is Adv. Uri Shiloh, partner at A. Shiloh & Co., specializing, among other fields, in real estate and planning and building law.