Redefining Spatial Planning and Development in Israel

Executive summary

Israel, a small and densely populated nation experiencing rapid demographic growth, has demonstrated remarkable resilience in managing substantial population increases while maintaining economic prosperity. Its recent development of the National Spatial Strategic Plan (NSSP) represents efforts aiming to move towards a forward-looking approach to spatial planning and development, while innovative governance arrangements such as the Eshkolot (regional clusters) initiative have shown promising results in service delivery and regional spatial planning and development cooperation.

However, with 93% of land under state ownership, a mix of ethnic and religious backgrounds, and continued rapid growth, the country faces mounting pressure on its spatial planning and development systems. Israel must balance competing demands for housing, infrastructure and services while preserving scarce land resources and meeting ambitious environmental targets, including its commitment to carbon neutrality by 2050. Security risks remain a high priority on Israel's policy agenda.

This report examines Israel's spatial planning and development framework through an analysis of institutional structures, development patterns, and spatial policies. It shows that fragmented governance, conflicting institutional incentives and limited local autonomy have produced spatial outcomes that can potentially undermine the effective realisation of national priorities. The report highlights how reforms, guided by clear national principles and empowered local authorities, could address issues including housing affordability, socioeconomic disparities, sprawl, service accessibility and environmental goals.

Key findings

Pronounced spatial inequalities persist across religious and socioeconomic lines. Income levels in the richest local authorities exceed those in the poorest by more than threefold and are widening at the fastest pace in the OECD. Incomes in predominantly Jewish local authorities are significantly higher than in Arab-Israeli local authorities. Accessibility to schools and hospitals is more than twice higher in high-income versus low-income city areas, with even wider gaps in towns and semi-dense areas. High-income and predominantly Jewish areas benefit from up to four times more high-density vegetation while generating nearly double the wastewater per capita compared to low-income Arab-Israeli areas.

Current development patterns reinforce sprawl and inefficient land use. New developments concentrate primarily in the urban periphery, particularly 10 to 30 kilometres from urban centres, with low-density development dominating in high-income areas. The density of these new developments has also fallen steadily. Building permits are issued disproportionately in areas far from urban centres, while remaining restricted in high-demand areas close to city centres, exacerbating sprawl, increasing infrastructure costs and failing to address housing needs where they are most acute.

Institutional fragmentation and misalignment with strategic national priorities undermines coherent spatial development. Multiple actors pursue independent spatial development agendas with a lack of coordination. The Israel Land Authority manages 93% of national land and is incentivised to prioritise revenue generation through land sales. The Ministry of Housing and Construction focuses on rapid housing construction permitting, often through special committees that bypass local planning processes, while the Ministry of Finance effectively operates its own development policy through project-specific funding decisions. This fragmentation is compounded by the absence of legally binding national spatial objectives, despite the Israel Planning Administration's recent development of the NSSP. Reliance on frequent national-level amendments to local statutory plans reflects a reactive culture where immediate development pressures and institutional interests consistently override long-term strategic considerations.

Local authorities lack meaningful powers while facing counter-productive incentives. Israel's local authorities function primarily as service providers within a framework inherited from the British Mandate legislation, with minimal spatial planning and development autonomy. The centrally regulated property tax system (Arnona) sets commercial rates five times higher than residential rates, leading local authorities to prioritise revenue-generating commercial development over housing needs and incentivising low-density development for high-income households. These one-size-fits-all approaches fail to accommodate local contexts and contribute to inefficient spatial development while reinforcing spatial inequalities.

Key recommendations

Establish legally binding national spatial development objectives and principles. Israel would benefit from formalising comprehensive spatial development objectives and principles that are legally binding (statutory), building on the NSSP. These should integrate social, environmental and economic goals, and include requirements for public transport, mixed-use development, density standards and environmental protection. Parliamentary legislation should ensure democratic legitimacy and binding force on all actors.

Separate development and regulatory functions in the spatial planning and development system. Planning committees could enhance their effectiveness by being comprised of independent professional experts rather than ministerial representatives. Clear separation between development proponents and authorisers is essential. The National Planning and Building Board should ensure compliance with national objectives rather than advancing sectoral interests.

Meaningfully decentralise spatial planning and development powers. Local governments should be awarded genuine decision-making authority over spatial development. This includes autonomy to set development bylaws, prepare comprehensive plans and approve detailed developments. Central government must provide robust capacity-building support, particularly for weaker municipalities.

Reform fiscal incentives to promote sustainable development. The Arnona system could be optimised through reforms to reduce commercial-residential tax ratios and remove incentives for sprawl. The redistribution of tax revenues could ideally be conducted at a regional scale and through transparent formulas. Local authorities would need greater autonomy for alternative revenues through development levies and local taxes.

Enhance inter-municipal cooperation (IMC). Israel has scope to strengthen inter-municipal entities such as the Eshkol to promote cooperation, reduce socioeconomic disparities and maintain local distinctiveness. Establishing clear legislative and administrative frameworks for IMC would be beneficial, such as by specifying responsibilities and financial contributions. Cooperation at a metropolitan scale could be encouraged by formalising the concept of Functional Urban Areas (FUAs) that is already proposed in the NSSP, widening its implementation to statutory plans, and targeting central funding to regional priorities within each FUA.

Integrate environmental sustainability as a core spatial planning and development principle. Development decisions should incorporate binding targets aligned with 2050 carbon neutrality. Planning should mandate transit-oriented development, high-density vegetation standards, and renewable energy integration. Priority should be given to improving environmental quality in disadvantaged areas while preventing displacement through affordable housing provision.