This chapter analyses Israel's institutional framework for spatial planning and development. It examines the roles and interactions of key national and local institutions. While the framework has served to manage a substantial population increase in prosperity in a densely populated country, the chapter reveals significant institutional challenges: fragmented authority across multiple agencies, conflation of implementation and regulatory roles, and a local finance system that creates incentives that do not align with inclusive spatial development. The chapter concludes with recommendations for reforming the spatial planning and development system through an integrated approach guided by common objectives and principles, clearer separation of powers, meaningful decentralisation, and restructured fiscal incentives to promote more sustainable and equitable spatial development.
Redefining Spatial Planning and Development in Israel
Abstract
The chapter highlights that improvements in spatial development outcomes need to integrate a broad perspective for successful regional development, including spatial planning, the management system supporting policy development and implementation, as well as their role for the spatial allocation of resources. These themes are always present and must support each other in a simultaneous and ongoing manner. It points, for example, to avenues for enhanced spatial economic development that can support better access to housing, employment and public services, such as education and welfare, including through less congested transport. Such policies can also improve environmental outcomes. Following the events of October 7, 2023, and their aftermath, Israel must also address the massive recovery of affected towns and villages, in which a holistic view of spatial development discussed in this research can be helpful.
The government in Israel comprises two levels: the central and the local. The chapter first describes and analyses the roles of national and local institutions dealing with spatial planning and development, delving also into multilevel management frameworks. It then assesses the impact of the framework on the performance of spatial planning and development. A recommendations section concludes.
Compared to other OECD countries, Israel’s spatial development has some unique features including the national ownership of most of the territory and the constant sense of urgency related to rapid population growth. Unusually, several national ministries are directly involved in spatial planning and development. This section presents the leading national spatial development institutions.
Israel Land Authority (ILA)
The Israel Land Authority (ILA) was founded in 1960 as Israel Land Administration, and in a 2009 reform renamed as Israel Land Authority, to protect, manage and control the state land, including land directly owned by the state, land managed by the Development Authority (a governmental body that keeps the Comptroller of Absentees’ land since the construction of the state) and land owned by the Jewish National Fund (JNF). These lands comprise 93% of the state’s territory. Shares of privately-owned land exceeding 50% are only found in Tel Aviv (Figure 4.1 and Table 4.1). Most of Israel’s urban and rural development occurs on publicly owned land leased for long-term periods to its holders. Development initiatives require ILA agreement. The importance of the ILA for all types of development is, therefore, crucial.
Note: Values are in square kilometres. Percentage of total land in brackets.
Source: Israel Land Authority (2023[1]), Budget Proposal for the year 2023-2024 and explanations.
Source: Israel Land Authority (2023[1]), Budget Proposal for the year 2023-2024 and explanations.
The ILA’s activity is subordinate to the Israel Land Council (ILC), established in 1960. Currently, the Minister of Housing and Construction is the Council’s chairperson, and thirteen other members are appointed by the government, including seven government representatives and six JNF representatives. The following sections describe the history of these land management institutions and their current performance. In the early stages of its inception, the ILC was eager to prevent the conversion of agricultural land into developed and urbanized areas.
The primary tool in this process was the Committee for the Preservation of Agricultural Land. The planning legislation placed the Committee alongside the highest planning institution, the National Planning and Building Board, and demanded that the transformation of land classified as agricultural be approved by the Committee. At the same time, the Committee mapped about 70% of the state’s undeveloped land as actually or potentially agricultural, excluding only the Negev desert. Although most applications to the committee eventually received their approval, the entire procedure nevertheless managed to discourage unnecessary alteration of undeveloped land.
Since the late 1980s the expectation of massive ex-USSR Jewish immigration created a sense of crisis and demanded rapid development of housing, infrastructure and urban areas. An interim planning committee enabled circumventing the Committee for the Preservation of Agricultural Land and easing the transformation of agricultural land (now termed the Committee for the Preservation of Agricultural Land and Open Spaces). In 1990, following massive immigration from the former USSR and the emerging sense of a housing crisis, the Israeli government declared an immediate de-freezing of significant portions of agricultural land for development.
A process of ‘creeping privatisation’ (Alterman, 1998[2]) or ‘veiled privatisation’ (Weisman, 1991[3]) began in the early 1990s. This process increased the rights of urban land lessees to accelerate the conversion of open and agricultural land. In 1990, the government appointed the housing and construction minister as chairman of the ILC instead of the minister of agriculture. During the 1990s, the ILC began offering compensation to farmers holding agricultural land to encourage its conversion. In 1997, about 700 000 urban housing units were transferred to private ownership, and in 2006, the ILC offered urban dwellers the option to pay the leasehold and get full ownership (Hananel, 2012[4]).
Following the 2009 reform, the ILA includes three professional divisions: the business division, focusing on planning, allocating and marketing land; the service division, focusing on managing existing leases and developed land; and the land maintenance division that maintains and safeguards the state’s interests in the publicly owned lands. The ILA’s goals, as defined by the 2009 legislation with amendments in 2013 and 2014, included allocating land for affordable housing, requisitioning land for environmental needs and servicing landowners. While the declared goal of the reform was to reduce bureaucratic barriers and speed up planning and development, it incentivised the ILA into becoming an active developer interested in marketing land based on land value uplifts urbanisation generated, while other social interests such as affordable housing provision were less emphasised. The importance of environmental interests was also reduced, as the ILC’s new structure excluded representatives from environmental associations from full membership. Even so, during the 1990s, the ILC adopted a series of resolutions to ease agricultural land transfer. To safeguard national resources, the planning system added various definitions for some natural spaces to be preserved.
Overall, the reform marked a dramatic transition in the conceptualisation of undeveloped land, While before undeveloped land was deemed potentially agricultural and therefore designated for preservation, the 2009 reform conceptualised undeveloped land as potentially urban, thus emphasising its planning, marketing and development (Hananel, 2012[4]; Feitelson, 1999[5]). The shift towards developed land between 2017- 2020 is illustrated in Table 4.2.
Source: Ben-Moshe, N. (2022[6]), State of Nature Report 2022 - Volume Trends and Threats. https://hamaarag.org.il/re.
The ILA initiates, plans and implements numerous development initiatives throughout Israel (Feitelson, 2018[7]). The ILA plays a central role especially when a new development is initiated on national land, often taking on multiple roles simultaneously, including planning, managing, and implementing the project. The ILA’s activity is often responsible for the conversion of agricultural land and open spaces (Feitelson, 1999[5]; Frenkel and Orenstein, 2012[8]).
Many new large-scale neighbourhoods (with more than 1000 apartments) planned between 1990 and 2020, were mostly planned on land previously designated for other uses. About a half (68 plans) used land that had previously been dedicated for agriculture and open spaces, another 18 were planned on industrial, commercial and public buildings land, and only 45 plans used residential land. The extent of land converted from agriculture to urban development by these plans exceeds 47 square kilometres (Savaya and Alfasi, 2024[9]).
Current challenges
The following highlights the leading challenges posed by this development model.
A potential lack of strategic oversight over national interests in land management and spatial development
The ILA’s overall policy in land management and, specifically, the allocation of land to new development, is a sole ILA matter. Though the ILA operates within a governance structure that includes oversight from the Israel Land Council, in practice the authority maintains significant autonomy in determining how and where national land resources are allocated, including promoting plans on agricultural land and open spaces. This autonomy, combined with revenue-generating imperatives that benefit the national budget, creates a system where broader societal interests may not receive adequate consideration in development decisions. While initial coordination is often required with governmental units such as the Ministry of Finance who supports the provision of infrastructure to planned sites and the Ministries of Transportation and Energy, the ILA’s activities do not necessarily adhere to national and district policies (Hananel, 2015[10]; Alfasi and Migdalovich, 2020[11]). The sovereignty of the ILA’s activities can thus in some cases go against strategic national interests or coherent spatial development practices.
Incentives that prioritise profitable development over broader societal interests
The shift in the ILA’s incentives has led to broader societal interests, such as environmental and social agendas, to be neglected in land allocation and development decisions. As the landlord, the ILA auctions and sells land designated for development to the highest bidder (Hananel, 2015[10]; Savaya and Alfasi, 2024[9]). The ILA is sovereign in deciding upon the location, purpose (e.g. housing, infrastructure, employment, etc.) and amount of land to auction. The ILA is also generally sovereign to decide on land sales. This leads to more development, which is lucrative to the ILA but not necessarily in line with broader strategic societal interests. Figure 4.2 illustrates the sharp increase in the number of residential units marketed by the ILA in the last decade following the 2009 reform which started to take effect in 2013. While revenue generated from land sales mostly flows to the national treasury rather than directly to the ILA itself, the institutional incentive structure nevertheless encourages the prioritisation of profitable development over other considerations. The ILA's performance metrics and operational mandates appear to emphasise land marketing and revenue generation, potentially at the expense of long-term strategic planning for social and environmental sustainability.
Note: “Auctions” refers to all residential units put up for sale through ILA auctions. “Actual marketing” refers to the residential units that were sold through ILA auctions, excluding units that failed in bidding.
Source: ILA
Low density urban development
Current development patterns exhibit inefficient use of land, mainly due to allocating large plots of natural or agricultural land to housing construction and using a limited area of the residential lots for building. This increases consumption of scarce land and leads to inefficient urban patterns in central and peripheral locations.
The density of new development is generally determined by the National Outline Plan No. 35 (NOP 35), authorised in 2005. Until 2022, NOP 35 defined minimal density in terms of residential units per a thousand square meters, considering only residential lots included in a development plan without considering areas for roads, open spaces or public buildings. Amendment no. 4 authorised in 2022 redefined urban density in terms of population (residents) per square kilometre, setting the gross average density at 15 000- 30 000 capita per square kilometre, depending on the size of the city.
The study of new neighbourhoods planned between 1990 and 2020 containing at least 1 000 apartments showed that the average density in the last thirty years was lower than this (Table 4.3), suggesting that national land may be used in an inefficient manner. The amendment no. 4 does not apply to the large inventory of plans authorised before 2022, about 800,000 apartments, authorised between 1990 and 2020, that have not yet been built. The study also reveals the poor connectivity of most of the newly planned neighbourhoods, with 104 (79%) of them having fewer than 6 roads connecting the planned area to the urban environment. Other neighbourhoods in similar areas have 23-30 connections to the urban surroundings.
Source: Savaya, Y. and N. Alfasi (2024[9]), Neighborhood planning: A path-dependent perspective on the gap between discourse and practice, the Israeli case. https://doi.org/10.1016/j.cities.2024.105005.
As a major developer whose activities generate substantial revenue for the national treasury, the ILA is a powerful body that can effectively advocate for its institutional perspective even when this perspective diverges from other public agencies, which is often the case for environmental issues. For example, in 2022 the ILA successfully opposed the designation of open spaces in the national strategic plan for the year 2040. The open spaces section was meant to reserve high-value agricultural lands and ecological corridors as areas with development limitations. The ILA argued this designation would limit housing construction and the expansion of settlements. Lease payments and land marketing revenues collected by the ILA yield significant income to the state reducing government net debt. The challenge lies not necessarily in the fact that land sales generate revenue, but rather in ensuring that the institutional framework governing these sales properly balances short-term financial considerations with long-term societal needs and environmental sustainability. Figure 4.3 summarizes the financial performance of the ILA based on the annual reports.
Source: Liran Kosman, E. (2023[12]). An Estimation of the State’s Income from Selling House. https://fs.knesset.gov.il/globaldocs/MMM/ed77665d-00bc-ed11-8155-005056aac6c3/2_ed77665d-00bc-ed11-8155-005056aac6c3_11_20011.pdf.; Israel Land Authority, (2021[13]). A Yearly Report 2021. https://www.gov.il/BlobFolder/reports/reshut-mekarkeai-israel-2021/he/publications_doch18102022.pdf.
The Israel Planning Administration (IPA)
The Israel Planning Administration (IPA) is the governmental institution responsible for spatial planning and running the statutory planning. The Planning and Building Law 1965, based on the British Planning Command of 1936, established the IPA and the national planning apparatus. The law defined the planning hierarchy, including the National Planning and Building Board, the District Planning and Building Committees and the Local Planning and Building Committees, as well as the three levels of statutory documents: the National Outline Plan, the District Outline Plan and the Local Outline Plan (Figure 4.4). The IPA has mainly worked under the auspices of the Ministry of the Interior.
Source: Alfasi, N. and E. Migdalovich (2020[11]). Losing faith in planning. https://doi.org/10.1016/j.landusepol.2020.104790.
The National Planning and Building Board oversees the preparation of national and district outline plans. It provides recommendations to the government regarding the authorisation of national outline plans and authorises the district outline plans. The National Planning and Building Board also has innate secondary committees such as the Committee for the Preservation of Agricultural Land and Open Spaces, mentioned in the previous section, and the VATMAL, the Committee for Planning Special Compounds, described below.
There are six districts with Planning and Building Committees: Jerusalem, North, Haifa, Center, Tel Aviv and South. Each district committee has 19 members. Eleven are governmental representatives, five are representatives of local governments from the district, and the other three are NGOs and environmental organizations representatives. District Planning and building committees prepare the district outline plans and submit them to the National Planning and Building Board. They authorise local outline plans and run appeals and objections sub-committees. There are 131 local planning and building committees in cities, towns and regional councils. The local planning and building committee members are the public delegates in the local council (Center, 2024[14]).
Like other modern planning systems, the Israeli system has undergone substantial changes since its inception in 1965. Each change aimed to solve a specific difficulty while lacking a coherent institutional view. Some modifications rearranged the distribution of powers; others presented new commissions to particular issues and modified existing procedures or the contents of statutory plans. Thus, as of January 2025, the Planning and Building Law 1965 is expected to undergo its 159th amendment, currently discussed in parliament.
In 2023, the IPA introduced the National Spatial Strategic Plan (NSSP), addressing planning and development policies across the country. The NSSP proposes regional spatial planning as an important tool to reduce social and economic disparities between regions and provides a framework to regional planning. It emphasizes the need to develop a vision of future living environments that enable accessibility to services and opportunities, and economic development. The NSSP also devotes separate sections to urban development, climate change, open spaces and technological changes. Each section provides a long-term strategic view, policy recommendations and actions, which are, however, not statutory. Despite its comprehensive scope and detailed recommendations, it is not integrated into the statutory outline plans.
The regions newly defined by the NSSP correspond to daily functional patterns around urban centers. The methodology for outlining the regional borders focuses on residents’ daily lives. According to this approach, a region needs to provide an optimal living environment and decreased commute time. This regional division also uses geographic continuity as a primary criterion with no gaps or isolated areas. Continuity is vital to avoid fragmentation and ensure that the region functions as a cohesive unit in terms of daily movement, infrastructure, and resource distribution. These regions could facilitate more coordinated development approaches, particularly where travel-to-work patterns and service provision naturally cross municipal boundaries.
Still, two fundamental characteristics remain unchanged.
The lack of coherent and strategic policies, targets and principles: In Israel, like in many other regulatory planning cultures, statutory outline plans specify planning policies. However, the statutory outline plans in Israel are not conditional on agreed-upon policy goals, principles or targets. Moreover, as shown below, outline plans are subjected to frequent changes and amendments initiated by central government institutions and private developers to achieve their specific needs. While the NSSP declares goals, such as promoting densification of already developed land and preserving agricultural and open spaces, these are unenforceable. Planning decisions are not based on broad goal setting.
Moreover, other government agencies such as the Ministry of Housing and Construction, the Ministry of Transportation and Road Safety and the Ministry of Environmental Protection also prepare strategic plans and develop long-term policies. As we demonstrate below, the integration of these plans and policies into a cohesive spatial and development framework remains an unresolved challenge.
The dual role of planners in planning institutions: The governmental representatives within the national and the district planning committees represent specific ministries and institutions. As such, they must fulfil two conflicting roles. One is implementing agreed-upon policies and safeguarding the built environment’s quality, while the other is advancing the specific interests of their respective ministries or institutions as representatives, for example by allocating land (ILA) or delivering housing (Ministry of Housing and Construction). The dual role planners face can hinder their commitment to broader national and societal interests.
Current challenges
The planning law’s original directive was to take decisions downwards from the top of the hierarchy, the National Planning and Building Board, to the District and the Local Planning and Building committees. However, development is led by numerous ministries so several governmental institutions besides the IPA also promote plans. Usually, governmental institutions and private developers prepare local, detailed plans offering specific development that is not necessarily tuned with the statutory plans. Most national, district and local development initiatives are conducted through local amendments to the already authorized outline plans. The District Planning and Building Committees enact amendments to a local outline plan, and changes in a district outline plan require the approval of the National Planning and Building Board (Alfasi, Almagot and Benenson, 2012[15]; Razin, 2015[16]; Feitelson, 2017[17]). This process overloads the supervising commissions and slows development plan approval (Figure 4.5).
Source: Alfasi, N. and E. Migdalovich (2020[11]). Losing faith in planning. https://doi.org/10.1016/j.landusepol.2020.104790.
The frequent use of local zoning amendments matches the lack of guidelines for decision-making and of means for coordinating public enterprises (Box 4.1). The District Planning and Building Committees and the National Planning Board have no broad guiding principles to prevent scattered changes and programs. The amendments are therefore discussed case by case. This makes development inherently fragmented and lacking in policy guidance.
The implementation of the central district outline plan from 1982 shows that by the year 2000, more than 50% of the development did not conform to the original outline (Alfasi, Almagot and Benenson, 2012[15]). Such ongoing amendments are still the case with other district outline plans. For example, the southern district outline plan No. 4/ 14/ 23, authorized in 2012, already had 68 approved amendments by 2023, some 20 of which deal with substantial issues like constructing new towns and villages and converting large agricultural areas into urban development. Most of these plans are initiated by governmental institutions, again highlighting the fundamentally fragmented way development decisions are made.
Similar spot-planning dynamics typify local planning and development at the municipal level. A recent State Comptroller report (State Comptroller, 2023[18]) defines spot-planning as a local amendment to an original authorized plan. The report claims that between 2016-2022, 60% of local plans were authorized as spot-planning, accounting for 82% of the local plans submitted by private developers to the Local Planning and Building Committees. This type of planning practice is both time-consuming and difficult to coordinate. The report claims that the average authorization period for a local spot plan submitted to the Local Planning and Building Committee is 375 days, which may rise to 552 days if it requires authorization from the District Planning and Building Committee.
The frequent amendments described above, resulting from several governmental institutions initiating case-based development, burden and slow the planning authorization process. Specifically, development initiatives contradicting existing policies seek faster and easier authorization paths that remove the need for the District and Local Planning and Building Committees’ consent. Circumventing committees have therefore been created (Charney, 2017[19]; Mualam, 2018[20]). These national-level committees operating beside the National Planning and Building Board are authorized to amend national, district and local outline plans without the approval of lower-ranked planning committees (Figure 4.6). Their decisions are also not subjected to the authorization of the Committee for the Preservation of Agricultural Land and Open Spaces. They are also granted the authority to issue building permits.
Source: Alfasi, N. and E. Migdalovich (2020[11]). Losing faith in planning. https://doi.org/10.1016/j.landusepol.2020.104790.
One example of a committee circumventing local spatial plans is the National Infrastructure Committee, entitled to overrule the District and the Local planning committees’ decisions and to change approved district and local outline plans for enacting infrastructure plans. This committee deals with the development of infrastructure and recently also tourism, declared by the minister in charge as ‘national’ in scope. The National Infrastructure Committee is staffed by a majority of governmental bodies (fifteen out of eighteen) and enjoys a short approval process, mainly thanks to reduced rights to public objections. The result is that the development of roads, railways, power stations, solar fields, wastewater treatment facilities, hotels and recreation facilities are only partially coordinated with other land-use plans.
Another important special committee is the National Committee for Preferred Housing Plans (NCPHP). This committee was appointed in 2011 as an interim solution for housing development under a different title (National Housing Plans Committee). Since 2014, it has been reappointed every few years. This special commission is manned by a majority of governmental representatives (12 out of 18 members, with 4 local government representatives and 2 civil organizations’ professionals. (Savaya and Alfasi, 2024[9]). It is set to discuss and approve massive housing development plans (Table 4.4), mainly on undeveloped land outside the existing urban areas, which can result in uncoordinated development.
Housing residential units enacted by the special committee and by the statutory District Planning and Building committees, respectively
Note: The special committee refers to the National Housing Plans Committee (NHPC) and its successor, the National Committee for Preferred Housing Plans.
Source IPA. The 2012-2023 (n.d.[21]). Yearbooks of the Israeli Planning Administration. https://www.gov.il/he/pages/shnaton; IPA National Reports, https://www.gov.il/he/Departments/Guides/shnaton
Between 2012 and 2023, the District Planning and Building Committees enacted plans throughout Israel containing more than a million residential units (Table 4.2). At the same time, the National Committee for Preferred Housing Plans (NCPHP), working in parallel, authorized nearly 400 thousand residential units, typically in large-scale developments, with an accelerating trend after 2012 (Table 4.4). However, the number of built apartments does not exceed 600 thousand units (Statistics, 2025[22]), little more than a third of planned units, raising doubt about the effectiveness of planning additional units in special committees, as these are not coordinated with other sectoral policies or local actors.
To sum up, the structure and processes run by the IPA reflect the fragmented nature of the spatial development framework in Israel and the lack of consensual goals and principles for development, as is illustrated with the planning for housing above. The IPA is aligning local, district, and national plans with the interests of various governmental ministries involved in spatial development on a case-by-case basis.
The Ministry of Housing and Construction (MHC)
The housing sector is a top priority for spatial development in view of population growth. It shapes settlement patterns and the spatial distribution of economic activity. Related investment decisions, including for infrastructure, are long-term and costly to reverse. These spatial patterns of housing and construction activity are therefore key for economic development, social equity, and for achieving environmental targets with low economic costs.
The Ministry of Housing and Construction (MHC), established in 1961, is responsible for planning and building residential units, urban regeneration and rehabilitation, provision of housing assistance and developing and enforcing building standards. The Ministry’s development activity is activated through two of four administrative wings, the New Building Administration, which includes the Senior Planning Division and Senior Marketing Division, and the Rural Matters Administration. The administrations are relatively independent, with planning teams and relevant collaborators form other public sector organisations.
Rising housing prices, especially in metropolitan areas, incentivise the ILA and the MHC to accelerate planning for housing, with the aim to speed up actual residential construction. In 2017, the IPA and MHC prepared a national housing strategic plan for 2017-20401. The plan anticipated a need for 1.5 million new residential units, suggesting the IPA and MHC prepare a planned inventory of 2.6 million units. It was suggested that the National Committee for Preferred Housing Plans be tasked with preparing the plans for this inventory. However, despite the considerable number of residential units planned (approximately 600 000 units authorized by the planning committees in 2017-2022), the number of constructed units did not follow. The result is a growing stock of housing plans that gradually become outdated, because they do not correspond to current spatial development priorities. Such plans may include irrelevant urban structures and housing types.
In 2021, the IPA and the MHC presented a new national housing plan for 2022-20252. This plan also sets a target of enabling 70 000 construction starts per year, asking for the authorization of about 500 000 residential units, 125 000 per year, for this purpose. Additionally, the plan suggested publishing tenders for national land matching the construction of 75 000 residential units per year, hoping to market land for at least 45 000 units yearly.
Since 2018, the MHC has been developing regional plans to promote growth in peripheral areas. The ministry has completed plans for Ashqelon County (including the cities of Ashqelon, Ashdod, Kiryat Gat, Kiryat Malakhi, and surrounding rural settlements) and Western Galilee County. Additionally, plans were initiated for Kinneret, Valleys County and the Eastern Negev, covering both urban and rural areas.
Local authorities from these regions participated in the planning process, and while the regional plans are not statutory, they were approved by the District Planning and Building Committees. These plans enabled local governments implement development projects, such as the construction of regional colleges or marinas. In doing so, they help address the gaps caused by the absence of a robust local government. However, questions remain about the extent to which these regional plans align with both local and national development objectives.
Current challenges
Enlarging the stock of authorized residential units does not by itself accelerate construction or calm housing prices. This is evident from the slow rise in residential construction despite accelerated planning. In addition, the average price of apartments in new, governmentally planned areas is higher than the average price of apartments in the city (Figure 4.7). This is generally true even after considering that newer constructions are generally higher priced compared to older housing. This suggests that government housing construction is oriented toward higher value markets, with limited provision of new housing for low-income households.
Price of new government-planned development areas and average price in the corresponding city
Note: Neighbourhood refers to new, governmentally planned residential areas.
Source: Savaya, Y. and N. Alfasi. (2024[9]). Neighborhood planning: A path-dependent perspective on the gap between discourse and practice, the Israeli case. https://doi.org/10.1016/j.cities.2024.105005.
Ministry of Finance
The Ministry of Finance plays a key role in spatial development through its Budgets Department, which is responsible for shaping the government’s economic policy. The Budgets Department is organized in six teams (Table 4.5), represented by economists who are coordinators for specific subjects and ministries. The department’s structure mirrors the institutional divisions within the government and its primary aim is to function as an integrator and coordinator across these divisions.
Source: Ministry of Finance (2022[23]). Organizational Structure - Budget Division. https://www.gov.il/he/pages/structure-budget
Decisions on whether, how, and to what extent the department activates financial tools, such as allocating funds and supporting spatial development are typically made internally, often at the team level and occasionally at the department head level. While the budget law assigns budgets to general clauses, detailed allocation, particularly for ongoing plans and projects, remains in the hands of the Budgets Department. In practice, this means that the Budgets Department effectively operates its own independent development policy, with varying degrees of coordination with other governmental institutions. The department advances spatial development through three main channels that interact and complete each other:
Planning: The Budgets Department provides both financial resources and professional support for spatial planning and development projects. This involves work teams led by various government ministries to prepare plans for the development of specific areas and populations. The department’s roles include allocating funds for planning and offering professional and statutory support, such as representation on the National Planning Board. Development plans are typically coordinated with relevant local and central government institutions, including the ILA, the Israel Defense Forces, various governmental ministries, and local authorities.
Supporting development: The Budgets Department allocates funds for specific activities as part of broader development initiatives, including infrastructure projects like roads and industrial facilities, as well as social services. This involves channeling funds through responsible governmental institutions and monitoring their actual use.
Creating financial tools and removing barriers: The Budgets Department prepares the legislation to finance development activities such as regional tax incentives and “National priority areas” (discussed below) where the central government offers loans and grants for housing and economic projects. In addition, the department plays a key role in removing barriers to development by negotiating specific agreements with other government institutions, including both local and central government entities.
Given the centralized structure of spatial development in Israel, the fragmented nature of governmental agencies and the absence of strategic policies, the Budgets Department’s influence on spatial development is strong. For example, the department is deeply involved in planning and constructing housing through contracting Umbrella Agreements with local authorities.
The agreements are a response to the financial weakness of many local authorities and their embedded reluctance to develop housing, which burdens their infrastructures and social services. At the same time, there is a pressing need to promote residential development. The Budgets Department thus advances major development agreements wherein the local authority agrees to the construction of new apartments in exchange for additional development funds from the central government.
The agreements may require amending statutory plans, with the Budgets Department potentially financing the planning process, often in collaboration with the ILA or the MHC, and supporting the approval of these plans through its formal role at the relevant planning committees. The Budgets Department is thus involved in planning, financing and barrier removal3.
The transfer of army bases from central locations to the Negev is another initiative through agreements between the Budgets Department and the Israeli Defense Force. It frees up land in central areas for housing and urban development while promoting economic development in the Negev. Again, the department is involved in initiating and planning, finances necessary activities and infrastructures, and provides incentives for the actors.
Capturing land values is another central-government activity that facilitates development. A recent case is National Outline Plan No. 70, designated for intensifying urban development near future metro stations planned in the Tel Aviv Metropolitan area. Negotiations with local authorities often involve a combination of incentives and taxation strategies designed to pressure and persuade municipal authorities to accelerate development and modify the mix and types of land uses. These approaches aim to encourage local governments to support more intensive development while potentially altering existing land-use patterns to align with broader economic and strategic objectives, taking advantage of real estate value uplifts. However, detailed local planning remains top-down and may not suit local authorities' policies and needs.
Current challenges
Centralized control hinders strategic spatial leadership as the Budgets Department lacks integration with spatial policy matters in particular from local and governmental stakeholders. Different ministries may pursue conflicting agendas, leaving the Budgets Department’s referents as key decision-makers. Due to the lack of agreed national priorities in the field of spatial development, team members direct national resources according to their understanding of needs. The discrete project-oriented approach encourages the use of circumventing planning tools, weakening coherence of spatial development and reinforcing centralization.
The economic criteria are often overemphasized, as the Budget Department often prioritizes projects based on their potential for economic return and revenues, such as land sales or tax revenues from expected development. This focus can sideline important social and environmental considerations, again leading to development that ignores broader socio-spatial goals, such as equitable access to services or environmentally sustainable land use.
Project-oriented economic considerations can lead to long-term economic losses. This is evident in the case of Umbrella Agreements, which often promote the construction of low-density, detached neighbourhoods. Although these agreements may seem economically viable in the short term, they frequently bypass comprehensive planning processes, leading to the expansion of cities into open spaces and agricultural land. This approach often results in the creation of environmentally and socially unsustainable neighbourhoods. Similarly, coercing local authorities into development projects to capture land values, with the lack of infrastructure and social service coordination, can lead to significant social, environmental, and economic harm.
These weaknesses highlight the challenges of balancing economic efficiency with social equity, environmental sustainability, and long-term strategic planning. They emphasize the centrality of national development tools and the fragmented nature of governmental activity, which is aligned with the lack of strategic thinking. They stress the need for a more integrated and inclusive approach to development, with greater emphasis on local needs, long-term goals, and the equitable distribution of resources.
The Ministry of Transportation and Road Safety
The Ministry of Transportation and Road Safety oversees the planning, development, and regulation of transport infrastructure and systems across Israel. Its Infrastructure Planning and Development Department is responsible for drafting long-term plans and development strategies for roads and public transport. The department also provides planning guidance on various issues at multiple scales. Currently, the department is advancing National Outline Plan No. 42, a national statutory plan for roads and transport infrastructure. This plan was deposited for approval in 2020 and is still under discussion by the National Planning and Building Board.
The Ministry of Transportation and Road Safety is represented on the National Planning and Building Board and other national committees, such as the NCPHP. The ministry’s representatives also serve on all district planning committees, where they can provide input on discussed plans and share their expertise.
The National Authority for Public Transportation was created in 2013. The authority is responsible for planning and developing public transport services, improving accessibility to public transport and service quality. Although the authority is intended to operate as an independent institution under the Ministry of Transportation and Road Safety, its legal framework and statute have not yet been fully finalized.
In 2021, the Ministry of Transportation and Road Safety completed the preparation of a national strategic plan for 2050 along with a 2030 implementation plan. Intentions to create regional and metropolitan transport authorities have not materialized yet, but the ministry is attempting to develop strategic plans with 15 selected local authorities.
Current challenges
A 2019 State Comptroller report (2019[24]) addressed the severe traffic congestion in the major cities and on the intercity routes leading to them, highlighting that Israel’s road traffic density is the highest among OECD countries at 3.5 times the average. The report estimated substantial economic costs of traffic congestion, noting that public transport services have been insufficient in mitigating it. This reflects underdeveloped infrastructure, inadequate investment, and planning deficiencies. Several critical setbacks continue to impact the integration of an adequate transport system into following development efforts.
Planning and spatial development have devoted insufficient attention to public transport for many years. Urban neighbourhood planning often overlooks requirements of high-quality public transportation services, which can be provided at lower cost and service frequence in dense, well-connected areas.
By the time most plans reach the district planning committees, they have already been negotiated and agreed upon by stakeholders, usually the ILA, the local government and other involved parties. At this stage, the ministry’s ability to implement significant changes, such for public transport-oriented development, is minimal. A significant inventory of approved but not yet implemented plans for new neighbourhoods, commercial or industrial areas and other urban land uses, do not provide adequate public transport networks. Their implementation will result in spatial development that continues to lack in public transit provision.
The Ministry of Environmental Protection
Since 1988 the Ministry of Environmental Protection is responsible for formulating a national policy on sustainability and environmental protection, including air quality, sewage, waste disposal, hazardous materials, sea and river pollution, ecological corridors and related issues. The Ministry is distinguished by its three-tier structure, which operates at the national, district and local government levels. This structure allows the ministry to coordinate activities effectively with local governments. The Local Government Division of the ministry supports 60 environmental units which are categorized into three types:
Municipal Environmental Units, functioning as departments within local authorities, with employees subordinated to the local government.
Regional Environmental Units, as departments subordinated to one local authority but address environmental quality issues across multiple local authorities, which collectively fund their activities.
Unions of Cities for Environmental Quality, statutory corporations established by a decree from the Minister of the Interior. They are managed by a joint council composed of representatives from the participating local authorities. Currently, there are 11 such unions dedicated to environmental quality.
There are 49 municipal and regional environmental units and 11 Unions for Environmental Quality. About 200 local authorities are related to some kind of local environmental unit, while 46 local authorities are not. Further governmental bodies and companies under the responsibility of the Minister of Environmental Protection include the Nature and Parks Authority, the Environmental Quality Services Company, companies that manage defined areas (Ariel Sharon Park, the Mediterranean Cliffs) and independent authorities for river basin management. These entities enforce environmental laws, implement policies, and provide essential services related to sustainability and environmental protection.
The Ministry of Environmental Protection is leading the National Implementation Plan for Addressing the Climate Crisis 2022-20264. This plan outlines national targets for reducing greenhouse gas emissions in key sectors such as energy transformation, transportation, solid waste, construction, and other emitting activities. It also details policy measures, including new legislation and incentives. However, the plan lacks details about the agencies responsible for implementation or a clear budget. The Climate Law was passed by the Knesset (the Israeli parliament) in December 2024. It provides significant discretion to government bodies tasked with its implementation.
Current challenges
Environmental targets and the use of quantitative indicators to measure performance against targets, are not integrated in spatial development policy and they are not accepted by all actors. As a result, environmental priorities are frequently overlooked or inadequately addressed in planning and development projects. These risks raising the economic cost of achieving key environmental objectives, such as Israel’s net zero carbon emissions objective or health impacts from environmental degradation, such as air pollution. Like the rest of the Middle East, Israel is expected to become a "climate hot spot." Experts have warned that Israel is not adequately prepared to face the impending challenges (Tal, 2021[25]). The lack of integration of environmental objectives in spatial planning and development are especially concerning given the anticipated impact of climate change on Israel’s society and economy.
Agreements on large development projects are taken without full account professional expertise on key locally relevant environmental issues. Representatives from the Ministry in District Planning and Building Committees, as well as in the National Planning and Building Board cast their votes according to the instructions from central government.
Indeed, the inclusion of environmental issues in Israel’s development policy is an ongoing and significant challenge. Support for preserving the land resources among the ministries involved in development is often lacking. A good example is the struggle of the Ministry of Environmental Protection and the Nature and Parks Authority to exclude ecological corridors from future development. In the early 2000s, an ecological corridors map was drawn up but has not gained statutory status. While the Planning Administration seeks to include the map in the National Outline Plan 1, there is opposition to this from development parties such as the ILA and the MHC.
The association of local governments with environmental units is voluntary. Municipalities and local authorities that choose not to participate are the wealthiest, who can afford to provide services without ministerial support, and the weakest, who often lack the capacity to manage sewage and waste properly. As a result, these authorities may fail to provide adequate environmental services or enforce environmental protection regulations, leading to gaps in environmental management and oversight.
The enforcement of environmental regulation by the ministry and the municipalities (including by the local environmental units) is fundamentally insufficient (State Comptroller, 2019[26]), with little remedial action (State Comptroller, 2023[27]). The ministry lacks a proper enforcement framework, leaving most documented environmental hazards without administrative or criminal enforcement action. Where such action is taken, it is not consistently documented, lacks uniform procedures, and is not integrated into an official enforcement system that alerts all relevant parties to environmental violations. Local environmental units hesitate to take criminal enforcement action against violators due to local political pressures and relationships.
Developed areas are typically managed by local and municipal governments, but natural spaces often lack adequate supervision and management. Specifically, there is a significant gap in statutory tools and policy measures designed to maintain such spaces effectively. This makes the protection and stewardship of these areas particularly challenging. While designating areas as nature reserves or forests has proven to be successful, it is difficult to preserve and protect areas that do not qualify as such. This leaves many open spaces vulnerable to neglect and degradation.
The Ministry of Agriculture and Food Protection
The potential agricultural land in Israel is estimated at about 42 million square meters, most of it is located in the centre, in the north, or in the northern Negev. Half of the agricultural area is used for field crops, about a quarter is used for growing orchards and citrus fruits and the rest for vegetables and flowers. In addition, there are about 200 000 square meters of fishponds, mostly located in the valleys of the Lower Galilee, the Upper Galilee and the coast. Most of the agriculture in Israel is based on cooperative communities (Kibbutzim, Moshavim) or similar worker settlements on state-owned lands. Only about 20% of the agricultural land is held by private owners.
The planning division within the Ministry is represented on both the District Planning and Building Committees and the National Planning and Building Board. It also participates in the ILC. Through these channels, the ministry plays a crucial role in planning and development. Additionally, it initiates agricultural projects, supports community and municipal development, and oversees the establishment of agricultural buildings and facilities.
A recent example is the Ministry's involvement in advocating Agro-Voltaic installations, which combine solar energy equipment with agricultural activities. The Ministry has been promoting an updated National Outline Plan that supports research-based policies to advance this innovative combination. The goal is to replace traditional land-based solar fields, which often encroach upon agricultural land. However, these plans are not integrated in overall spatial development of renewable energy potentials that will be needed to reach Israel’s carbon neutrality target, and resulting economic opportunities. The Ministry is further responsible for river basin management in 11 Drainage Authorities. These statutory corporations participate in development projects that concern water extraction or management.
Current challenges
The Ministry does not play a role in the transformation of agricultural land into urban and developed land, which may have contributed to such transformations and the resulting urban sprawl. Research estimates that in the 1970s, about 180,000 square meters of agricultural land were transferred to development every year. By the late 1980s, the amount grew to 500 000 square meters annually.
The Ministries of Education, Health and Welfare, and Social Affairs
While several further ministries are involved in spatial planning in development (including the Ministries of Economy and Interior), the Education, Health and Welfare and the Social affairs Ministries are responsible for essential local services. The extent to which their policies are integrated into spatial development is limited.
All three ministries have their own planning departments. Additionally, the Ministry of Health is represented on the National Planning and Building Board, while a representative from the Ministry of Welfare and Social Affairs serves as a consultant to the board. Each ministry is responsible for planning and constructing new facilities, such as hospitals, clinics, schools, kindergartens, and welfare bureaus. These plans are aligned with the development of new residential areas. Education, health, and welfare are seen as necessary services that follow spatial development rather than services whose accessibility needs to be shape spatial development, for example, in the planning of new housing.
The ministries recognize that this approach has generated disparities in service availability and quality between central and peripheral regions, as well as between cities and neighbourhoods. Efforts to reduce these gaps are coordinated through annual work plans and targeted projects when appropriate.
Current challenges
Education, health, and welfare service provision are distant from other spatial planning and development decisions at all levels of government and therefore fail to address spatial inequalities in access to these services. At the local level, spatial planning departments often lack awareness, knowledge, and the necessary tools to effectively integrate these critical social services into their planning processes. At the district and national levels, realising the contribution spatial planning and development can make to improve service provision requires defining spatial performance indicators and performance goals for education, health, and welfare.
Central governmental regional development plans
Government resolution plans aim for the holistic development of regions across Israel. These plans are cross-governmental, well-funded strive to enhance and well-being of populations in a certain area based on policies and targets set by the central government.
The Spatial Planning and Development Team at the Prime Minister's office is involved in preparing these plans. The plans involve a list of governmental ministries and national institutions, each adding particular tools and professional knowledge. The plans define the contents and the timetable for implementation, provide measurable targets and allocate the needed budgets for their fulfilment. These plans typically have a short-term scope of 2-4 years and are closely monitored and evaluated. When required, they are extended for another short period of a few years. This approach allows for flexibility and responsiveness to evolving needs and circumstances.
Such plans were prepared, for example, to develop the northern peripheral cities of Kiryat Shmona, Shlomi and Metula (resolution 3740 from 2018) and the city of Sderot and the Gaza borderline area (governmental resolutions from 2017, 2019, 2021, 2023), to address disparities amongst Arab citizens (resolutions No. 922 and from 2015 and 2021), the development of the Bedouin population of East Negev (2022), and the development and empowerment of the Druze and Circassian settlements in Northern Israel (2023) and similar issues.
The methodology for preparing the plans and implementing them includes three phases:
Initial review: This stage is carried out mainly with local authorities. It includes gathering information and analysing background data, identifying trends and processes, in the selected locations. The Spatial Planning and Development Team meets the local leaders and studies local characteristics and needs. Based on this, the team defines the plan target area and, together with the participating local authorities, defines the areas of activity and the performance goals.
Detailed planning: Here, the team prepares extended action plans with the relevant government ministries and institutions. The programs involve a variety of topics in social services, economic development and infrastructure. Therefore, the close involvement of the Ministries of Education, Welfare, Health, Economy, Tourism, Transportation, Housing, Agriculture, and Energy is required, as well as the support of entities such as the ILA and the IPA. Accordingly, allocating specific budgets is required in cooperation with the Budgets Department. The detailed planning assigns operational budgets to the relevant offices and determines their operational objectives.
The local authorities are exposed to the action plans at a relatively mature stage, mainly due to the political sensitivity and the desire to formulate substantive action plans and protect them from party pressures. Aa the conclusion of this stage, a government decision is formulated that binds all national bodies and local authorities.
Implementation: Implementation responsibilities are on the local authorities. The Spatial Planning and Development Team conducts ongoing monitoring of the implementation of the decision from each of the ministries and bodies involved in the government's decision, and an assessment of the quality of the measures and outputs is carried out. The quarterly evaluation is also presented to the local authorities and the feedback is consolidated, enabling the continuation of the process. Monitoring and control enable the identification of weaknesses and knowledge gaps and enhance policy design and capacity. This is an important byproduct of the process.
National Priority Areas
National priority areas were first established in 1993 through a governmental decision that designated two priority levels, A and B, with different benefits. The specific boundaries of these areas were detailed in a map attached to the decision. A subsequent governmental decision in 1998 added individual localities to this framework.
The idea of national priority areas faced legal challenges from parties excluded from these benefits. Following several petitions, the Supreme Court directed the government to formalize the concept through legislation in the Knesset. This led to the 2009 legislation, which authorized the state to officially designate national priority localities as long as they are based on clearly articulated criteria, providing them with economic benefits, such as special grants, tax reductions, and various incentives. The acceptable criteria demand that the chosen localities belong to the social or geographical periphery, be under military threat, suffer from out-migration or belong to economically declining regions. In 2023 the government approved the “New National Priority Areas Map”, aiming to Increase the government's ability to reduce socio-economic gaps, addressing more communities with weak socioeconomic status.
Operationalizing priority areas
Since 2009 the government has frequently updated the criteria for priority areas and the list of benefits granted by the ministries. The specifications granting priority to localities include peripheral location, peripheral index, military threat, and proximity to the national borders. New localities are also given the priority tag. Consequently, most localities in the Negev and the Galilee areas are part of the national priority areas.
Governmental ministries grade the benefits and support they provide according to professional characteristics and offer the localities extra services, tax reductions and special grants in the priority areas. As a result, localities included in priority areas enjoy benefits at personal, municipal and regional scales. These tools aim to encourage population growth, economic investment, and infrastructure development. They offer income and corporate tax reduction, subsidized mortgages and loans and grants for building and renovation, funds for public services and infrastructure projects.
Assessing the impact of such priority areas is a challenging task. It isn't easy to isolate the effect of a single action on social and economic trends. Still, priority areas are an available and active governmental tool for regional development. When assessing the impact of priority areas, the legislation and operation of priority areas in Israel lack the definition of criteria and indexes that enable the assessment of its impact and the achievement of its goals. Thus, while the government uses this tool extensively, it isn't easy to assess its actual contribution. Recent research on the legal framework claims it uses elusive criteria, frequently amends both the criteria and the priority areas, and may cause discrimination against specific populations (Bloch, 2023[28]).
The local government consists of 79 cities (jurisdictions with more than 20 000 inhabitants each), 122 local councils (urban localities including less than 20 000 inhabitants each) and 55 regional councils, including 1,014 rural localities (mainly Kibbutzim and Moshavim). Cities host roughly three-quarters of the total Israeli population, while local and regional councils host roughly 15% and 11% of the population respectively. In addition, about 69 000 people live in unregistered localities, mainly the north-Negev Bedouins. There are two industrial councils with no residents, one southern to Beersheba and the other north of Haifa.
Local government powers and responsibilities
The centralized structure of the government in Israel is reflected in the limited powers of the local authorities, which are seen mainly as providers of services. Local authorities’ duties and responsibilities derive from the British Mandate laws regarding municipalities (from 1934) and local authorities (1941) prior to the creation of the state of Israel. This judicial framework sees the local government as part of the governmental executive authority, with little legislative power.
Local governments are responsible for infrastructure and services provision. The local authorities fund road, water and sewer infrastructure from their revenues and provide public services such as education, religious and welfare services with central government funding. The local authority is responsible for operating the education system, including some employment and building maintenance. It operates welfare services responding to local demand. The local authority also appoints a local religious council, in coordination with the Ministry of Religious Services, to provide basic religious services. In all these matters, the local authority executes central government policy. However, municipalities in a better financial situation improve the social services provided to their residents.
The local authority oversees sanitation and is responsible for residential waste, supplying water and for the sewage system. Municipalities may supply wastewater treatment plants. Most of the services are provided through the local environmental units, subject to guidance from the Ministry of Environmental Protection. The local authority can grant businesses a license and is responsible for developing and maintaining public spaces, including roads, street lighting, and landscaping.
The local authority may enact bylaws dealing with development levies, parking policies or environmental quality. However, they need to follow central-government rules in terms of content, levies or fees, and the finance of infrastructures. Bylaws are subject to a complex procedure, especially concerning fees or levies. This results in lacking local spatial development initiatives and use of local economic opportunities.
Spatial planning and development
Local council members compose the Local Planning and Building Committee. The local authority is responsible for preparing a local outline plan, getting it approved by the District Planning and Building Committee and issuing building permits. Since the early 2000s, the Minister of the Interior can designate certain Local Planning and Building Committees as independent, enabling them to make amendments to their own local statutory plans without approval from the District Planning and Building Committee. This only applies to 20 local authorities. The ability to conduct real estate transactions, use revenues autonomously for local needs, and make financial commitments are limited.
The local authority's role is increasingly challenged by the establishment of national-level planning committees. These committees can bypass authorized national, district, and local plans and can even issue building permits, effectively sidestepping the local authority and potentially pursuing developments contrary to the municipality’s wishes (Box 4.1). Local development projects are often promoted through zoning amendments that override Local Planning and Building Committee decisions.
As a recent example of this tension, the Federation of Local Authorities in Israel and the Israeli Forum of Self-Governed Cities called for the disbandment of the NCPHP, arguing that its activities exclude local authorities. Conflicts have arisen in specific cities such as Herzliya, Hadera, and Ramat Hasharon, where large housing developments were planned and approved without their consent.
While local authorities may participate in planning new neighbourhoods, urban renewal, and densification, these efforts are primarily driven by private economic developers aiming to sell properties on the open market. To the degree they can influence housing supply, local authorities are interested in developing housing for relatively wealthy populations or employment and commercial areas, reflecting incentives emanating from the local tax system, discussed below. Municipalities are not actively involved in developing social housing initiatives Although affordable housing is a key objective of spatial development. The only notable exception is the Tel Aviv-Jaffa municipality, which conducts a lottery for a few apartments annually, offering five years of significantly reduced rent.
Subnational finance frameworks
Budget structures are similar across local governments and determined by the central government. The local authority prepares a regular budget for its services. Accordingly, the receipts for the regular budget are property tax receipts and payments by the central government for the services provided by the authority. In addition, the local authority can prepare an ad-hoc budget related to spatial development. It is funded by development levies, charges on landowners or transfers from the central government. The central government reviews and approves the local authorities’ budgets.
Property tax
Until 1985, the local government had almost complete autonomy in property tax (Arnona) policy, with minor intervention by the central government. In those years, a branched system of property tax orders developed among the local authorities, which related to property tax for residences and businesses operating within the jurisdiction’s boundaries. The property tax has become a primary source of income for most local authorities, alongside a government policy to reduce government support for local authorities while encouraging the increase of their revenues. In 1985, a radical change was made: the property tax rates that existed at that time at the municipal level were frozen, and any change in property tax required the approval of the Ministers of the Interior and Finance. Central government transfers currently make up more than a third of revenues (Figure 4.8).
Source: Central Bureau of Statistics, (2024[29]). The Local Authorities 2022 File. Link.
Note: The regular budget of all local authorities in 2022 summed up to 82.4 billion NIS.
In 2007, new property tax rules defined 13 main classifications of real-estate taxation nationwide and guided the municipalities in classifying assets along with minimum and maximum rates for each category. The rigid framework of the 1985 and 2007 reforms has created a distinct lack of viability from the point of view of the local authorities for the development of residences. Many have stipulated that the system of Arnona, adversely affects spatial planning and development patterns in local authorities (Fitoussi, Yakir and Sarel, 2016[30]; OECD, 2021[31]). This is because the property tax rates are much higher, on average 5 times the amount, for commercial and industrial land compared to residential areas (OECD, 2021[31]). Furthermore, various tax discounts and exemptions are awarded for residential properties below certain income thresholds.
The Arnona can thus discourage new residential development, particularly for high-density units that are low and moderately priced, in favour of commercial and industrial land uses. Although precise estimations of causal effects are difficult to obtain, it is easily recognisable that zoning for lower-density residential housing is beneficial for property tax collections. There is a strong positive correlation (0.5) between the residential area per capita in a local authority and the amount of residential property tax collected per square metre (Figure 4.9)
Source: Israel Central Bureau of Statistics (2023[32]), Regional Statistics, https://www.cbs.gov.il/en/settlements/Pages/default.aspx?mode=MoazaEzorit (accessed on 2 August 2023).
Nearly all local authorities with both high amounts of residential area per capita and residential property tax collections are located in intermediate areas in the outskirts of urban centres. This suggests that property taxes affect not only land use and development densities, but also reinforce the spatial socioeconomic inequalities and the adverse environmental outcomes of sprawled development highlighted in the previous sections.
Local authorities are also affected differently depending on the ethnic or religious composition of their population, in which residential density tends to be high and property tax collections per unit area low in most predominantly Arab local authorities. The already large disparity in income levels and socioeconomic capacities between Jewish and Arab local authorities is aggravated by lower property tax collections in Arab municipalities which can limit public spending and thus access to public services and infrastructure. Such effects are compounded by the fact that central government transfers are too small to close local revenue gaps. The effect of equalisation funds in other OECD countries is much more substantial: pre-equalisation disparities are reduced by roughly two-thirds on average, while in Israel by only one-third (OECD, 2020[33]). The differences in overall government revenues in Israel even after the impact of the grants remain the highest in the OECD (OECD, 2021[31]). This also means that the incentive effects on spatial planning reinforcing spatial inequalities and favouring of sprawled development are not much affected by redistribution.
These adverse effects spill over to non-residential development. The allocation of commercial and industrial areas across space varies depending on the socioeconomic levels of local authorities. This is partly due to residential property tax structures that force lower income municipalities to rely more on taxes derived from non-residential uses. Local authorities with the highest socioeconomic capacities (Socioeconomic clusters 9 and 10), according to Socioeconomic Index5, derive only about 20% of property taxes from non-residential land, and in relation, the amount of commercial and industrial area per capita in these municipalities is comparatively low.
In contrast, local authorities with middle to lower socioeconomic capacities (Socioeconomic clusters 4 to 8) derive over 40% of property tax revenues from non-residential land and allocate larger amounts of land per capita to commercial and industrial uses. The share of non-residential property taxes in disadvantaged local authorities (Socioeconomic clusters 1 to 3) are on par or higher than that of the municipalities with high socioeconomic capacities yet with less commercial and industrial areas per capita, suggesting that disadvantaged areas collect very little property taxes overall, and that they fail to attract much commercial and industrial activity, perhaps because they need to charge high tax rates (Figure 4.10).
Note: The Israel Central Bureau of Statistics divided the municipal authorities into 10 rungs expressing residents’ socio-economic status, with 1 being the lowest and 10 the highest rung. The rungs are defined based on 14 parameters, including residents’ income, property, education and other indicators
Source: Israel Central Bureau of Statistics (2023[32]). Regional Statistics. https://www.cbs.gov.il/en/settlements/Pages/default.aspx?mode=MoazaEzorit (accessed on 2 August 2023).
Property tax structures encourage suboptimal allocation of commercial and industrial land across Israel. Commercial and industrial land tends to be over-allocated in municipalities with middle to lower socioeconomic capacities, and under-allocated especially in disadvantaged local authorities (OECD, 2021[31]). This can lead to inefficient spatial development as some commercial and industrial areas are inevitably left empty, while people, especially in disadvantaged areas, are forced to travel greater distances and spend more time utilising private vehicles when adequate commercial or industrial activities are not located in their vicinity. Residents in disadvantaged local authorities lack equitable access to commercial and industrial areas, which can also hinder access to job opportunities and keep them and their populations locked in a disadvantaged status, to the detriment of economic development in the country.
Tax structures also fail to mitigate inequalities across local authorities. Local authorities in the lowest Socioeconomic index cluster generate only about 1 000 NIS per capita in own revenues, while those in the highest cluster generate nearly 10 500 NIS, a seven-fold difference (Figure 4.11). While central government transfers provide some equalisation, bringing total revenues in the lowest cluster to around 8 000 NIS per capita compared to 12 500 NIS in the highest Socioeconomic cluster, these transfers are insufficient to fully narrow the gap. This limited equalisation scheme stands in contrast to other OECD countries where equalisation mechanisms reduce pre-transfer disparities by over two-thirds. Overall, this reflects the structural challenges facing disadvantaged local authorities under the current Arnona system. The result is a self-reinforcing cycle of fiscal weakness that limits the ability of these local authorities to provide adequate public services and infrastructure, further entrenching spatial inequalities (Figure 4.12).
Note: Total revenues include own income and central government transfers. The Israel Central Bureau of Statistics divided the municipal authorities into 10 rungs expressing residents’ socio-economic status, with 1 being the lowest and 10 the highest rung. The rungs are defined based on 14 parameters, including residents’ income, property, education and other indicators
Source: Israel Central Bureau of Statistics (2023[32]), Regional Statistics, https://www.cbs.gov.il/en/settlements/Pages/default.aspx?mode=MoazaEzorit (accessed on 2 August 2023).
Source: Adapted from Agmon (2017[34]). Describing and Analysing Local Authorities Budgets. https://main.knesset.gov.il/Activity/Info/Research/Pages/incident.aspx?docid=794f3c35-88d2-e711-80de-00155d0a0235.
Regional clusters (Eshkolot) as a tool for spatial development
Municipal authorities’ dependence on non-residential tax revenues and the related bias toward developing commercial areas leads to competition between neighbouring jurisdictions over local development. Mainly, small cities in relatively peripheral locations are reluctant to cooperate and advance regional development. Several Cities’ Unions were created over the years, focusing on cross-municipal infrastructure and environmental aspects. While the Cities’ Unions, currently 29 unions across Israel, deal mainly with water supply, sewage, garbage disposal and some with education services, regional development is usually left out.
To fill this gap, voluntary associations of neighbouring municipal authorities named Eshkol (Eshkolot in plural) were created to enable cooperation. The Western Galilee Eshkol formed in 2009 was initially defined as a Cities’ Union. The need for specific legislation for the Eshkol became evident based on a pilot initiated in 2012 by the Ministry of Interior and the Ministry of Finance in collaboration with civil society associations. The law was indeed articulated in 2016 as an amendment to the Cities’ Unions Law 1955. The legislation allows the delegation of powers, exemption from tendering between the authorities and against the Eshkol, and receiving regional government budgets. The Eshkolot were declared by a government decision as having national priority, which allows the government ministries to direct resources and budgets to them to promote regional activities. A new Senior Division for Regional Development was established in the Ministry of Interior. For the first time in Israel, the Eshkol enables the cooperation of socially heterogeneous jurisdictions to reduce gaps and create shared communities.
The Eshkol structure and funding
Establishing an Eshkol and determining its areas of activity depends on the voluntary will and agreement of the local authorities (Israel National Digital Agency, n.d.[35]). The Eshkol includes at least 6 localities in geographical sequence and 50 000 residents and must comprise a variety of jurisdictions in terms of municipal status, social and economic status and population composition.
The Eshkol is run by a statutory commission, including the municipalities’ elected heads and senior officials. Other forums are the heads of localities, whose role is to articulate the regional strategy, navigate the Eshkol and deal with occasional challenges and dilemmas, and the appointed management, responsible for proper daily management. Each authority voluntarily decides which field of activity the Eshkol deals with to join so that not every activity area includes all members.
The Ministry of the Interior provides dedicated transfers to support the clusters in their establishment stages, ongoing activities, and promotion of development projects. The budgeting of the Eshkolot is differential and relies on the establishment stage, the population’s socio-economic level and the Eshkol’s peripheral degree. The local authorities share in the Eshkol’s current budget, according to their size and socio-economic status, following a model established by the Ministry of the Interior. In addition, each authority finances the projects with which it partners. Finally, each Eshkol can raise government budgets for specific projects and services.
The declaration of the Eshkolot as having a national priority allows the government ministries to establish criteria for providing designated benefits to particular projects. The Ministry of Environmental Protection is the primary agency with which most of the clusters have ongoing cooperation, along with the Ministry of Energy, the Ministry of Agriculture, the Ministry of Development of the Negev and the Galilee, the Ministry of Education, the Ministry of Tourism and the Ministry of Economy (Ministry of Interior, 2024[36]).
There are currently 12 Eshkolot in Israel, bringing together 170 local authorities of various ethnic origins, which make up 65% of the authorities in Israel and include 3.4 million residents. The most recent Eshkol is the Coastal Plain Eshkol, comprised of 6 localities south of Haifa with more than 100 000 residents6. The composition of this Eshkol highlights their potential for integrating social and economic diversity. It includes two relatively wealthy local councils, two weaker Arab councils and two regional authorities. Most other Eshkolot are located in the southern and northern peripheries, enabling the cooperation of Jewish and Arab municipalities with diverse socio-economic status.
Eshkol activity and performance
Service delivery is the most significant impact of the Eshkolot's activities (Ministry of Interior, 2024[36]). By pooling resources, the Eshkolot have successfully improved the quality of services while also saving costs, including through better spatial distribution of provision. In total, the Eshkolot have delivered social and environmental services valued at 450 million NIS, while simultaneously generating savings and additional income totaling 74.5 million NIS.
The services provided by the Eshkolot match the local authorities' duties and responsibilities: most services are in social and environmental fields or relate to digitization of services (Figure 4.13). Altogether, the Eshkolot provided 99 different services, some of them never given in some of the authorities. Thus, the study by the Ministry of Interior reports 88 new frameworks and arrangements for people with disabilities in just 9 of the oldest Eshkolot, thus both improving the level of municipal service and enabling family member to integrate in employment outside the home.
Source: Ministry of Interior. (2024[36]). The Economic Impact of Regional Clusters (Eshkolot) 2022-2023, link.
One key area of service is the administration of public tenders for procurement. The study highlights that Eshkolot have managed 105 active tenders and even notes that 21 of these tenders were coordinated and contracted by at least two Eshkolot working together. 113 cities and local authorities made use of at least one tender. The study estimates the total savings for the authorities with about 10 million NIS.
Securing funding for various initiatives and development projects is another area where Eshkolot significantly impact local government in Israel. The study reports that nearly one billion NIS (970 million NIS) was raised by the Eshkolot for their associated local authorities. Of this amount, 97.5% was sourced from governmental ministries, with around 500 million NIS obtained through governmental decisions and 300 million NIS from the Ministry of Transportation. While this highlights the benefits of collaborative efforts, it also underscores the local authorities' dependence on government-level agreements, which are not always guaranteed, as well as the challenges individual authorities face in negotiating directly with the government.
The study found that the number of partners and cooperation frameworks in the more established clusters, which manage a significant volume of economic services and projects, was, on average, twice as high compared to the newer clusters. This suggests that time plays a crucial role in fostering a cooperative atmosphere, building trust, and generating goodwill. Overall, 11 Eshkolot (excluding the newest, Coastal Plain Eshkol) manage 112 forums and working groups covering a wide range of topics. Their collaborators mainly include local NGOs and governmental ministries but also feature representatives from the business sector, educational and academic institutions, and philanthropic organizations. Notably, two forums were jointly organized by two neighbouring Eshkolot.
Impacting a region's economy is usually a slow and cumulative process. The fruits of the above-described activity are not yet available. It appears, though, that the Eshkolot are eager to establish economic development projects of various scales and develop necessary infrastructure – mainly in transportation – to facilitate and invite growth. The study reports of 27 projects in various fields, in agri-technology, tourism, media, renewable energy.
Resulting challenges
Despite the achievements of the Eshkolot in service delivery, economic development and regional cooperation, these structures face significant challenges that limit their potential impact. The lack of formalised frameworks both internally and in relation to government ministries creates obstacles to the Eshkolot's ability to fully realise their vision of reducing regional disparities and fostering inclusive development across heterogeneous municipalities.
Internal challenges:
The Eshkolot face several internal challenges. There is a lack of an accepted institutional framework. The great degree of freedom given to the Eshkolot results in significant heterogeneity in their work, scope and how they conduct themselves even in similar fields. The Eshkolot's goals and activities are determined by the heads of authorities' and senior professionals' understanding of needs. Identifying needs continues to be affected by tensions between partnering localities and internal pressures within the authorities. Creating common decision-making institutions could potentially overcome fragmentation within the Eshkol.
Difficulty in cooperation presents another challenge. Despite improvements in inner collaboration among the most veteran Eshkolot, establishing collaboration and trust remains problematic both between the municipal authorities that comprise the Eshkol and between these authorities and the Eshkol's management. Economically weak municipalities struggle to transfer revenues for activities that do not yield immediate savings. Stronger municipalities can often manage specific areas better than the Eshkol and tend to reject what they perceive as limitations on their independence and judgment. In the absence of joint decision-making institutions, this further weakens the position of economically weaker municipalities, who may consequently derive less benefit from the arrangement.
Not all partners identify with the regional concept that forms the foundation of the Eshkol. They do not all see the advantage of regional management in the same way. Some localities view the Eshkol merely as an executive arm or service provider, particularly in areas where there is a clear size advantage.
Challenges vis-à-vis governmental ministries
Regarding governmental ministries, one main challenge is a lack of administered framework. The attitude of government ministries towards the Eshkolot is not regulated and varies considerably in practice. Some government ministries, such as the Ministry of Environmental Protection, recognise added value in working with the Eshkolot and actively support them and the regionalism concept. However, other ministries' activity with the clusters is more limited, and some do not work with them at all. This is due to various factors including the convenience of working on older platforms, mainly the district division, or because of the lack of control over working procedures, particularly regarding fund transfers. Departments within a single office sometimes differ in their attitude toward the Eshkolot.
Evaluation and control present additional challenges. There is no evaluation process for the effectiveness of the Eshkolot's work in various fields, especially regarding their contribution to regionalism and regional development. This is partly due to the newness of the Eshkolot within the local authority framework.
The effect of the Eshkolot on the entire local government field requires consideration. So far, no strategic examination of the role of the Eshkolot in the local government map in Israel has been conducted. Questions remain about whether the Eshkolot should develop and become an additional governing layer or remain a voluntary utility in areas that need it. This needs to be answered from a national perspective and with consideration of current and future local government development. Accordingly, decisions regarding the Eshkolot's statutory power in spatial planning, land allocations and spatial development are needed.
Assessing the determinants of spatial planning and development outcomes in Israel: The sequence of planning and development
New development is a central activity in Israel, affected by the rapid population growth and the continuous sense of crisis, particularly in housing. New development impacts infrastructure provision, environmental features, community relations, the local economy of local authorities. The following analysis divides the sequence of new development into six stages and highlights the main shortfalls and weaknesses, particularly regarding the integration of broader spatial development considerations into spatial planning that is too exclusively centred on housing:
Stage 1: Offering a new development project. Leading actor: Public landowner (ILA, MHC)
A new development plan commences with the initiation by a governmental body. The primary public developer is typically the ILA, who is also the largest landowner. Other governmental entities such as the Ministry of Housing and Construction, the Ministry of Transportation, and infrastructure providers may also initiate plans contingent upon their access to public land with the approval of the ILA.
In most cases, the motivation for initiating new development is constructing free-market housing. Infrastructure is another important development intention. In most cases, social matters, affordable housing and environmental protection are not the subject of new development. The initiation of development projects often does not align with existing authorized land-use plans or established planning policies. Furthermore, they do not always reflect the actual needs of the area in terms of spatial development, such as improving quality of life, access to education, health, and welfare services, and other essential community needs.
The first step in the development process typically involves coordinating the initiative with the relevant local authority. However, this coordination does not always result in consent from the municipality. Despite its reluctance or opposition, the landowner may choose to proceed, utilizing national planning committees that can override local objections.
Addressing weaknesses
In most cases, new development is project-based, often not coordinated with the local and regional policies to the degree they exist. New development projects expand existing localities, thus weakening the potential for regeneration of existing building stock, encouraging social segregation and burdening the environment.
There is a need for clear, well-articulated and coordinated spatial development policy at both the national level as well as in the regional and local level. Such policies should integrate social, environmental and economic considerations and cast practical and measurable development principles. By incorporating these dimensions, the development strategies can promote balanced regional development, reduce disparities, and enhance overall quality of life.
Stage 2: Ensuring the financial envelope. Actors: Landowner and Budgeting Department
The leading partner for publicly funded infrastructure would typically be the relevant referent of the Department of Budgeting in the Ministry of Finance, reflecting the lack of local government own resources and lack of coordination at regional level. It also reflects a limited focus on returns in the market economy that risks non-market costs and benefits, such as from environmental degradation, congested roads, or lacking access to public services in poor neighbourhoods.
Addressing weaknesses
Economic assessments are typically project-based yet neglect an examination of overall impacts beyond the project. For example, impacts on nearby neighbourhoods or service provision needs may be neglected. While a project can be economically viable, it may still be wasteful regarding its broader regional impact.
Budgeting for development projects should be based on an evaluation subject to comprehensive social, economic benefits and costs. Considering the low-density of existing urban areas on one hand and the scarcity of land on the other hand, Israel should prefer articulating tools for densifying developed areas in ways that enhances them and promotes their qualities.
Stage 3: Selling the land. Leading actor: Landowner
In many cases, public agencies may explore public-private partnerships (PPPs) as a means of mobilizing private resources and expertise. Such PPPs are commonly employed in housing and infrastructure projects, with the private partner selected based on the highest bid for the land through a public tender process. PPP deals can be intricate and multifaceted, involving multiple private entities.
Addressing weaknesses
Operationalizing large development projects through PPPs has led to a small dominant group of large entrepreneurs who are uniquely positioned to respond to and manage this type of development. This concentration of control among a limited number of players causes an increase in costs, born by residents or their local authorities, and uniformity of development patterns that may contradict local and national interests.
There is a need for alternative development models that empower the local authorities to serve as the leading planning agencies. By adopting a more hands-on role in the planning and development process, local authorities can better ensure that projects align with their communities' unique needs, preferences, and characteristics.
Stage 4: Planning. Leading actor: Landowner
Once the development offer is defined and the basic financial envelope secured, the landowner and the chosen developer turn to prepare a formal spatial plan. Planning involves professional consultants for various aspects, such as social affairs, environmental concerns, and infrastructure issues. Nevertheless, this stage remains an internal process led by the landowner and prepared by the private entrepreneur who intends to build the project.
Addressing weaknesses
The private entrepreneur typically prepares the plan with minimal and sporadic inputs from the local authority and district planning bureau. Thus, development plans pursue values such as high residential prices and building conformity, often resulting in duplicated constructions and uniform apartments. This spatial pattern negatively affects social and environmental features in existing cities and towns.
Governmental ministries, including infrastructure and social services suppliers, are rarely involved at this stage. Thus, although the planners are coordinated with articulated regulations and standards, they are not necessarily aware of local specifications and possibly other development projects in the near environment.
In line with the above recommendation, it is suggested that development plans be prepared by the local authority, corresponding to the local needs and qualities. The local authority is also suitable for coordinating development with relevant infrastructure and social services providers.
Stage 5: Plan submission, coordination and approval. Landowner, development agencies
It is only upon the formal submission of the plan to the formal planning and building committee that it is distributed to the governmental agencies for coordination and evaluation. A Threshold Conditions Document defines the list of bodies to coordinate the development with and the requested paperwork for such coordination.
At this critical stage, the landowner can choose whether to submit the plan to the District Planning and Building Committee or the NCPHP. Potential objections from the district planning bureau or some district committee members may lead to the NCPHP being chosen. In addition, the timetable for discussing and authorizing plans in the NCPHP is strictly defined and considerably shorter than at the District Planning and Building Committee. However, the District Planning and Building Committee is better tuned with other local or regional development agencies, with local long-term planning and spatial policies and with the local authority.
Inputs are usually requested from a list of involved parties, including the Ministries of Environmental Protection, Transportation, Energy and Infrastructure, Education, Health and Welfare and Social Security, Agriculture, Tourism, and infrastructure suppliers such as Mekorot, the national water company, the Israel Electricity Company, the relevant Drainage Authority and domestic gas suppliers. Some involved bodies may express their complaint or ask for refinements in the land-use plan. Others may submit a formal objection. The discussion and approval process may change the project and, rarely, cancel it. The entire stage may typically take a few years.
Addressing weaknesses
Starting the coordination of the development plan at this late stage, once the framework has been established, the developer chosen and the plan outlined, may lead to projects that do not align well with the area's needs both in principle and in their details and characteristics. In addition, it requires a time-consuming coordination process and may result in sub-optimal solutions.
Development projects should result from acknowledged local and regional policies and aim at broad social, environmental and economic goals. As such, they would be fundamentally integrated and coordinated between the relevant actors and fulfil their intentions.
Stage 6: Issuing building permits | Private developer
This last stage may also take about a year, particularly when the local authority grants a building permit, rather than the NCPHP circumventing the local authority. The local authority needs to check the conformance with local regulations, ask possible objectors to express their complaints, and, if requested, weigh possible easements.
Addressing weaknesses
Commencing development projects that are not acceptable to the local authority weakens them and may not fit with their ability to represent, serve, and nurture newly developed areas as well as other affected areas. Following the above recommendations, it is necessary to empower the local authorities and establish their ability to plan and implement development projects, possibly under the auspices of the Eshkol.
Establish binding and long-term national spatial development objectives and principles
The current fragmentation of spatial planning and development in Israel, where multiple agencies including the ILA, MHC, and Ministry of Finance pursue independent development agendas, has led to uncoordinated spatial development that often fails to address key social, economic, and environmental challenges. To address this issue, an institution such as the IPA should propose to establish clear, legally binding planning and development objectives that incorporate whole-of-government long-term goals. These objectives must specifically target the spatial development challenges Israel faces, such as the growing socioeconomic disparities across regions, inadequate housing provision, and environmental sustainability. These objectives should be formally legislated as part of the planning law and made binding for both private and public developers. The integration of whole-of-government goals and their legislation in parliament would also give it democratic legitimacy. The IPA is well-placed to do so, as it already developed the NSSP that establishes such spatial planning and development objectives. However, the NSSP is not legally binding.
The IPA, together with relevant ministries, should articulate detailed, measurable, and enforceable development principles that operationalize these objectives. This could be achieved, for example, by articulating the NSSP in terms of statutory development principles. Doing so offers several advantages: it establishes enforceable standards to support quality of life and access to economic opportunities and services and facilitates the integration of spatial and non-spatial aspects of development. At the same time, because these principles are not tied to specific locations, this approach allows for flexibility, enabling variations and adaptations to address local and regional needs and policies.
The principles should include specific tools, such as definitions of the accessibility of new and existing housing to public transportation and public services, how to mix various uses in urban settings, and how to define and preserve ecological corridors. They should direct local authorities on how to improve the qualities and the performance of the built environment and open spaces through practical yet enforceable development principles, coordinated with governmental ministries such as Education, Health, Transportation and Road Safety, Welfare, Environmental Protection and Agriculture.
For example, planning principles can require proximity to public transportation, health and education services as a pre-condition for any new development and insist on diverse housing and mixed urban development. It could also demand that each city prepares an urban regeneration plan and that new development is performed only after inner neighbourhoods are renewed. These development principles should become statutory through parliamentary legislation (by the Knesset) or as derivatives of the planning system (by formal authorization of planning committees). In the second case, National statutory plans, set by the IPA, should articulate these specific principles as their planning policies.
These reforms require redefining the role of individual government ministries, so they contribute to overarching goals and principles that guide all spatial planning and development initiatives, rather than conduct their own spatial development initiatives which risk failing to take into account the full range of spatial planning objectives, resulting in an improved spatial allocation of resources.
Reform the planning authorization system by separating development and regulatory powers to ensure professional, independent oversight while strengthening multi-level coordination
The current institutional framework for spatial planning in Israel suffers from two critical weaknesses: fragmentation of authority across multiple government institutions pursuing independent agendas, and conflation of development and regulatory roles within these same institutions. This dual problem is exemplified by bodies like the NCPHP, which has approved over 395,000 residential units between 2012-2022 often without local consent, prioritizing short-term gains over strategic objectives. The results are evident in development patterns, with sprawling, low-density development, and the majority of local plans being authorized as spot-planning amendments that bypass comprehensive planning considerations.
To address these systemic issues, a reformed planning system should be established where all government institutions subject their development plans to national objectives and operational principles, with the IPA operating as an independent planning review and authorization body. The National Planning and Building Board and District Planning and Building Committees should be staffed by professional experts for example from civil society and academia, ensuring clear separation between plan-makers and plan-authorizers, avoiding that Committee members represent the sectoral interests of specific ministries, and instead work towards the integration of sectoral policies according to the legislated principles.
This reformed system should filter down from national to local levels, with strong coordination mechanisms at each tier. Regional and local planning policies should follow national statutory objectives while incorporating unique local aspects.
Empower local authorities through meaningful decentralization of spatial planning and development powers
Israel's highly centralised spatial planning and development framework has hindered effective local development and contributed to growing regional inequalities. This centralized approach has resulted in development patterns that fail to adequately address local needs, as evidenced by stark disparities across various socioeconomic and environmental criteria.
To address these challenges, planning and development powers should be meaningfully decentralized to local governments. Local authorities should be equipped with professional planning departments capable of preparing and updating comprehensive development plans that address social, economic, and environmental challenges. The central government should provide robust support both administratively and financially for capacity building in spatial planning and development, especially for socioeconomically weaker local authorities.
This decentralization should give local authorities genuine decision-making power over spatial development within their jurisdictions, while maintaining alignment with national strategic objectives. Local Planning and Building Committees should have primary authority to approve detailed local plans in their territory, with higher-level review only triggered by public or private objections. This would help prevent the current pattern where development often prioritizes central government priorities over local needs and long-term planning objectives.
Local governments should be granted greater autonomy to set development-related bylaws and regulations, enabling them to better respond to local circumstances and needs. This reformed system would help ensure that spatial development better reflects local needs and conditions while maintaining coordination with broader regional and national objectives.
Strengthen regional cooperation through Functional Urban Areas (FUAs)
Fragmented local governance has contributed, at least in part, to inefficient spatial development patterns and widening socioeconomic disparities. The Eshkolot initiative has demonstrated promising results, with the existing clusters delivering services effectively while also generating substantial savings. However, their effectiveness is limited because they lack a formal and consistent institutional framework acknowledged by governmental ministries. Moreover, core metropolitan cities are not included in them. This contributes to fragmentation and prevents municipalities from cooperating within economically integrated Functional urban areas (FUAs). As experience across OECD countries has shown, organising municipal cooperation in this way improves resource allocation in housing, spatial planning and transport policies, producing better regional development outcomes.
The government should advance a clear administrative framework that encompasses all localities and require all governmental ministries to acknowledge it. Municipal cooperation should be formalized with elected leadership and transparent governance mechanisms that reflect participating authorities' interests. The government should define a core set of basic services the municipal cooperations must provide to the included municipalities, while allowing flexibility to add specialized services based on local needs - for instance, coordinated tourism infrastructure in tourism-dependent regions. This formalization would help address current challenges, for example, in cases where local authorities compete for commercial development due to the Arnona tax incentives, leading to inefficient land use.
The government could encourage future municipal cooperation within FUAs, integrating metropolitan centers. This could be based on the regions defined by the NSSP which correspond to daily functional patterns around urban centers. For example, it could match government funding to regional strategic priorities, defined with the local authorities in these regions.
Reform subnational financial incentives to promote balanced spatial development and reduce socioeconomic disparities
The current Arnona property tax system in Israel creates a series of perverse incentives that undermine sustainable spatial development and reinforce socioeconomic inequalities. Local authorities are incentivized to over-allocate land for commercial use while discouraging residential development, particularly affordable housing. Furthermore, fiscal frameworks encourage low-density, single-detached housing with large lot sizes, particularly in urban peripheries, as local authorities seek to attract affluent residents who don't qualify for Arnona exemptions. This has contributed to sprawl and inefficient land use patterns.
To address these systemic issues, the government could implement a comprehensive reform of the Arnona system that reduces the ratio between commercial and residential rates. This reform should be accompanied by stronger redistribution mechanisms, especially within FUAs, where labor markets and services are shared. The current equalization system is lacking, compared to other OECD countries, leaving Israel with the highest differences in local government revenues in the OECD.
To compensate for reduced Arnona revenues, local authorities should be given greater autonomy to raise alternative revenues through development levies and local taxes for activities such as tourism, parking, and business licensing. This reformed system would help promote more balanced, higher-density development patterns while reducing the socioeconomic disparities that currently characterize Israel's spatial development landscape. The “property tax fund” redistributes a share of property tax collections to poorer municipalities to incentivize the construction of homes in impoverished communities, which is a welcome step.
Integrate environmental sustainability into spatial development decision-making
Despite Israel’s substantial environmental challenges, environmental considerations are often sidelined in development decisions. Environmental targets and quantitative indicators must be fully integrated into spatial development policy and made binding for all actors, with clear mechanisms for measurement and enforcement. Development projects should be required to undergo comprehensive environmental impact assessments that consider not just immediate effects but also contributions to broader environmental goals such as Israel's carbon neutrality target for 2050.
This is particularly crucial given that current development patterns, with low-density sprawl and car dependency, are incompatible with these objectives. Special attention should be paid to improving environmental quality in low-income areas. Planning principles should mandate minimum standards for high-density vegetation, particularly in urban developments, and require integration of public transit and active mobility infrastructure to reduce car dependency.
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← 1. See: https://www.gov.il/BlobFolder/news/news_strategy01022017/he/news_strategy301017.pdf (In Hebrew)
← 2. See: https://www.gov.il/he/pages/press_12062022 (In Hebrew)
← 3. The Umbrella Agreements are criticized for the slow pace of implementation, the withdrawal of many local authorities from the agreements. Between the years 2013-2020, the Budgets Department signed Umbrella Agreements for the construction of about 430 000 residential units with 32 local authorities. Since then, new agreements were signed with 9 local authorities. By the end of 2023, only 80 000 residential units included in such agreements were granted building permission. There are concerns whether these agreements adequately address the type of development needed in these communities, suggesting that they are not responsive enough to local conditions (State Comptroller, 2021[38]; Eshel, 2023[37]).
← 4. See: https://www.gov.il/he/pages/implementation-plan (Hebrew).
← 5. The Socioeconomic Index is a composite index used by the Israel Central Statistical Bureau to characterise the socioeconomic condition of the population of local governments based on 14 demographic, economic and social variables. The index is used by the central government in the implementation of a number of policies related to local governments.
← 6. Information obtained from: https://www.gov.il/he/departments/news/news-09-09-2022. Visited 22.9.2023.