Urban Renewal in Israel: Main Barriers and Improvement Suggestions

Urban renewal is a process of improving and refreshing dilapidated, decaying urban environments. The main purpose of the renewal process is to enhance the living conditions of residents, their habitat, and their quality of life. In Israel, urban renewal is based on a private funding model, resulting in a kind of exchange deal (known in Israel as a “combination deal”), where the entrepreneur receives the right to build new housing units in the renewal complex, and in return rebuilds or upgrades existing units for the benefit of their owners.

Renewal construction has many advantages: optimal utilization of land and infrastructures; conservation of open areas; facilitation of efficient, sustainable urban and transportation planning; reduction of social disparities; improving residents’ safety against natural hazards and wars; increasing housing supply in areas of high demand; and improving the appearance of the city. Although those advantages have produced a consensus regarding the necessity of urban renewal, today only 12% of construction commencements are carried out in this manner. The current system of incentives is based almost entirely on increasing the housing density factor. The problem with this solution is the risk of overburdening existing infrastructures, and opposition by the municipal authority which is supposed to serve the additional households brought under its jurisdiction. Therefore, in this paper I propose a six-part reform agenda aiming to address existing barriers without resorting to overcrowding of the urban environment:

1. Urban renewal which is slanted in favor of sustainable transportation planning. First, higher urban density and reduced parking standards should be applied in the vicinity of light rail lines and main public transport routes. Living in proximity to a developed mass transit system would enhance the quality of life of residents, reduce their dependence on private vehicles, make private parking spots redundant, and lower construction costs for the entrepreneur, thus increasing the return yielded by the renewal project. Second, zoning regulations should allow mixed-use developments, by building commercial areas next to residential ones. Apart from improving the quality of life of residents due to the reduced need for mobility, this measure would raise property tax revenue, which should make it easier to obtain approval from the local authority.
2. Increasing construction rights granted by National Outline Plan (TAMA) 38 through its demolition track, and securing a minimum threshold of compensation for residents. Today, the difference in construction rights between renewal through a track which does not involve demolishing old units and the track which involves demolition is very low. Consequently, entrepreneurs do not have an incentive to carry out renewal through the demolition track without additional rights which they obtain through local planning. To reduce dependence upon local planning, I propose granting construction rights for up to two additional floors, which would be bestowed by TAMA 38 through the demolition track, along with ensuring a minimum threshold of compensation for residents, of additional 25 sqm over and above the area of their old housing unit.
3. Commodifying the rights of residents. Where residents are not interested in enlarging their residential spaces, or barred from doing so due to an engineering or planning impediment, residents should be allowed to receive equivalent monetary compensation from the entrepreneur, with a tax exemption.
4. Subsidizing urban renewal in periphery areas through Project Renewal (SHIKUM SHCHUNOT – "neighborhood regeneration") budget. In places where the value of land is particularly low, I recommend subsidizing renewal projects by up to NIS 50,000 per existing housing unit. At the same time, I recommend allowing the allocation of complementary lots to entrepreneurs, even if these lots are not adjacent to the renewal complex according to the National Outline Plan.
5. Resolving the distortion in municipal incentives created by the overarching “roof agreements” and the tax concessions prescribed by the renewal tracks. First, funding for public infrastructures according to the roof agreement should be stipulated on the condition that half of the new housing units will be part of the urban renewal project. Second, subsidies should be provided to compensate local authorities for their loss of betterment levies due to the tax concessions granted to the renewal project, financed either through budget allocations or through the roof agreement.
6. Privatizing the licensing and supervision procedures included in urban renewal schemes. In order to preempt strategic behavior by the municipality, private actors who meet statutory requirements should be allowed to permit construction and to oversee the process up until the residents move in. This approach is expected to significantly hasten the process, streamline it, and incentivize entrepreneurs to prefer construction through urban renewal over ordinary construction.