Buyers to pay the price as building inputs index jumps

Over the past four months the building inputs index has risen just 0.3%. At first glance this is a slow rate of increase, which does not reflect the complaints in the market in recent years, and even more so since the outbreak of the war, about a major increase in costs in the industry.

However, a look at the annual rate of increase tells a different story, influenced by a “jump” in the index at the beginning of the year. Over the last 12 months, the index has risen by over 5%, a rate not seen since 2021. All signs show that in the coming months the index will continue to rise, and at a faster rate than in recent months.

The index update continues

The building inputs index, for residential and office buildings, reflects the change in the prices of products and services for construction in Israel. It includes the prices of goods and raw materials used in construction, the cost of labor, the cost of equipment used in construction, and more.

At the start of 2025, construction company Danya Cebus petitioned the High Court of Justice against the Central Bureau of Statistics, claiming that it had not updated the construction input indices for 13 years, so that it did not reflect the true state of the market. Among other things, the company claimed that construction workers’ wages increased by 23% during the war following the ban on the entry of some 100,000 Palestinian workers into Israel, while in the buildings input index, wages had only risen 2%.

The Central Bureau of Statistics claimed it had already begun work on revising the input indices. One of the results of the revision was an almost unprecedented jump in the index, at the beginning of the year, by 2.6% in one month – an increase that sometimes occurs over an entire year or even more. In the following two months, the index rose by another 0.8% in total, and over the past four months by another 0.3%, so that the annual rate is 5.3%.

The bad news is that the index is expected to rise even further. The Central Bureau of Statistics work, which is currently focused on updating the various components of the index, has not yet been completed. Due to the claims of the builders and considering that the jump in January was also caused by an update to the index, it can be assumed that the index will rise this time again.

To this must be added the market situation. As Bank Hapoalim chief financial markets strategist Modi Shafrir explains, “The shortage of building workers is still with us, the volume of construction, with an emphasis on urban renewal, following the war with Iran and also regardless of it, is expected to increase, and there is a renewed rise in demand for workers in the industry. All of these are expected to further increase the building inputs index, in the long term.”

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Who will absorb the cost increases

The rise in the construction input index, certainly when it is so significant, has a major impact on the construction industry. Many work contracts, both in the private market and with institutions and government bodies, are linked to this index and so, a 5.3% increase in the index reflects an increase NIS 53,000 for every NIS 1 million. In an industry where work is ordered in the tens and hundreds of millions, this is a huge increase.

In the current situation, those who actually absorb these cost increases are mainly the ones who order the work: real estate developers who sign labor contracts with contractors to carry out the project they initiated; and contractors, who work with subcontractors to carry out the work.

That’s not all. In recent months, prices of apartments being sold have fallen, meaning that not only are contractors and developers paying more for the cost of labor, they are also earning less for each apartment they sell. Moreover, since July 2022, sellers of new apartments can only link half of the price of an apartment throughout its construction period to the index (as opposed to linking the full price in the past). Given the fact that the prices of new apartments are falling at an even faster rate than the general index (1.5% in June and 0.3% in May), the damage that developers and contractors are facing is twofold: an increase in inputs and costs, and a significant decrease in income.

However, the impact is localized: “It is true that the pace of sales has slowed recently, and that apartment prices are declining,” says Shafrir, “but these are not dramatic changes. The volume of apartment sales in the last 12 months is still 14% higher than in the previous 12 months. The increase in real estate stocks since the end of the Iran war, despite the correction last month, also signals an expectation of a renewed increase in demand, and a change in trend expected in the coming year in the real estate market. The current situation is making it more difficult for contractors and developers, but from their perspective, this is a temporary situation.”

Linkage has added 10%

In the long term, buyers will bear the additional costs, at least partially, because this is the way of the world. When making a product, an apartment in this case, becomes more expensive, it is the consumer who pays. Thus when inputs prices rise, and when the index rises, increases are passed on to buyers in one way or another.

To this equation must be added that many buyers purchased their apartments before the amendment to the law that allows only partial linkage of the apartment price to the index came into effect, and who have not yet paid the full amount. These buyers signed a contract that allows full linkage of the apartment price to the building inputs index. There has been a rise of about 10% in the index since then. In numbers, this amounts to an extra NIS 100,000 for every NIS 1 million.

Published by Globes, Israel business news – en.globes.co.il – on August 19, 2025.

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