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3. Policies for a sustainable residential sector


This chapter discusses how to accelerate climate mitigation in the residential sector whilst delivering broader well-being goals, such as affordable housing. Building 1.5 million new homes by 2040 under the Strategic Housing Programme may resolve the shortage of affordable housing, but runs the risk of drastically increasing emissions across the lifecycle of a building and indirect emissions (e.g., transport). The first section sets out a number of policies and recommendations to decarbonise dwellings, such as green and circular public procurement, and financing mechanisms for retrofits of the existing building stock. The following section presents recommendations for decarbonising beyond the dwelling to foster smart urban planning especially given the projected population growth in Israel and increasing heat island effects due to climate change; in addition to ways to relieve the financial burden placed on municipalities, for example, via greater decentralisation and the creation of Metropolitan authorities.

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In Brief
Key findings and recommendations for Israel’s residential sector

Residential emissions plateaued over the last decade, but could dramatically increase due to planned housing developments in the next two decades. 1.5 million dwellings will be constructed by 2040, increasing the housing supply by 60% relative to 2011 (EcoTraders, 2019[1]). If poorly and hastily constructed, these new dwellings could lock-in emission-intensive infrastructure until mid-century; putting pressure on other sectors (e.g. energy) to help reach the Paris Agreement targets.

At the dwelling-level, generating demand for sustainable dwellings whilst upgrading the existing supply of housing will be key.

  • By using green and circular public procurement for the 1.5 million homes under the Strategic Housing Programme, the government can generate demand for sustainable house and establish a sustainable construction sector. Analyses show that this does not need to cost more meaning it could be feasible.

  • To improve the existing supply of housing, establishing emissions limit values for existing and new dwellings is one tool to lower emissions.

  • High upfront costs and long payback periods can make retrofits unattractive to property owners. Innovative financial instruments could catalyse retrofits, e.g. soft loans. Providing information on green leases to property owners and tenants could be another means of fostering retrofits.

Beyond the dwelling, steer smart growth both in existing urban cores and in peripheral areas.

  • Minimum density regulations, urban infill and brownfield redevelopments with the use of land value capture mechanisms, land assembly mechanisms, and split-rate property taxation, can contribute to making cities more compact and sustainable.

  • Promoting the uptake of eco-neighbourhoods, by directing adequate funds (both from the national government and municipalities) and linking them to compliance with more ambitious standards will be important.

  • Planning and anticipating the inevitable growth that will occur in less – or non- urbanized zones will be paramount for ensuring urban areas expand in a sustainable way. This entails putting in place policies that guide developments along existing or future transport lines, e.g. planning for sufficiently spaced arterial grids, incorporating transport considerations into development standards.

  • Providing an adequate level of infrastructure and services, such as green space, water and waste management systems, and connections to accessible and frequent transport, will ensure the liveability of dense and compact urban areas. Israel can put in place standards that can ensure the provision of this infrastructure (e.g. using green space factors or transport accessibility indicators).

  • Simplifying and enhancing existing affordable housing assistance schemes is key to align the climate and equity agendas. Ways forward include widening the beneficiaries, determining assistance by need (i.e. backed by affordability analysis) whilst increasing rental supply through the removal of existing barriers (e.g. discouraging vacant homes by better enforcing the taxation on empty homes).

Decrease financial burden of municipalities and attract innovative sources of finance.

  • Overcoming the budgetary constraints of Israeli municipalities calls for greater devolution of power, funding and responsibilities to local governments. Building on good practice across the OECD, Israel can embark in a decentralisation process, providing greater autonomy and capacity to municipalities while ensuring coherence in planning and investment. The creation of metropolitan bodies could, for instance, be part of new institutional framework.

  • In addition to gaining financial capacity through a decentralisation process, Israeli municipalities could look at innovative ways to promote cooperation of a range of public and private actors, (e.g. inter-ministerial pool funding or Business Improvement Districts).

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3.1. Introduction

Israel faces two seemingly competing challenges in the residential sector, on the one hand, is a dire need for affordable housing, and on the other, is the necessity to decarbonise the sector. The housing shortage came to a head in the summer of 2011, when millions protested rising rents and lack of housing throughout the country.1 A decade later, the problem persists today.2 Rents have risen nearly 60% since 2010, a drastic increase for the 33.5% of Israelis who rent. In response, the Israeli government is building as many dwellings as quickly and cheaply as possible, but without adequate regulation of key sustainability determinants (EcoTraders, 2019[1]).

Pursuing only one of these priorities in policymaking could undermine the attainment of the other. Building dwellings as rapidly and inexpensively as possible, without due consideration of their sustainability, will increase GHG emissions (OECD, 2019[2]). Emissions will accumulate from carbon-intensive materials (e.g., cement, steel), energy use during the building’s occupation and its eventual demolition (WorldGBC, 2019[3]). Likewise, optimising policies for decarbonisation, for example, the creation of eco-districts, without taking into account the adverse impacts for affordability due to increases in value of land and property, could price out low-income families, further entrenching social inequalities and aggravating the problem of unaffordable housing (OECD, 2019[2]).

Policymaking in the residential sector should create affordable low-carbon housing that is also safe, comfortable, and equitable. Failure to do so could lead to irrevocable trade-offs (OECD, 2019[2]), locking in emission-intensive infrastructure for decades to come (see the discussion in Chapter 1). A well-being approach helps policymakers assess trade-offs and synergies between affordability and sustainability, or other priorities, signalling where complementary policies are needed (OECD, 2019[2]). Well-crafted policy packages can accelerate climate action in the residential sector by helping garner widespread political and social support.

A well-being approach to policymaking in the residential sector starts by recognising the spatial dimensions of housing – at the dwelling, neighbourhood and city-level (OECD, 2019[2]). Affordable housing is more than providing a shelter, but is contingent on whether there is nearby access to opportunities and services. If housing is location inefficient – without such access - then transport costs may render it unaffordable. Worse for mitigation, inaccessible housing further entrenches life around private vehicles, thereby raising emissions. Moreover, constructing dense housing developments in neighbourhoods without enough green infrastructure can exacerbate urban heat islands increasing energy demand from dwellings to use for cooling, especially during hot days, thereby increasing emissions. Because choices made at one level impact mitigation and well-being at other spatial scales, it is crucial to analyse polices at the neighbourhood and city-level in addition to the dwelling (OECD, 2019[2]; OECD, 2018[4]). Ignoring these spatial implications could lead to a self-reinforcing dynamic that creates unaffordable (for a large portion of the population) and carbon-intensive dwellings, neighbourhoods and cities. Conversely, climate policies that take a comprehensive vision can contribute to building resilient cities; helping them cope and adapt to acute shocks (e.g., natural disasters, pandemic) and chronic stresses (e.g., rising temperatures, affordability of housing) (100 Resilient Cities, 2020[5]).

The next section provides an overview of the situation in Israel, exploring the causes behind the housing shortage and the sources of emissions coming from residential dwellings. The following section evaluates policy and financial instruments that can help reduce emissions at the dwelling-level. The subsequent section discusses policies that go beyond the dwelling-level to tackle emissions by developing dense cities with mixed land-uses and integrated infrastructure –transport, waste, water and energy – to foster well-being.

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3.2. State of play: Housing shortage and emissions from residential dwellings

3.2.1. What led to the housing shortage?

Private landownership in urban centres, skewed budgetary incentives at the local level, and long approval times for building permits – averaging 12 years in 2011 – catalysed the housing crisis (OECD, 2017[6]; EcoTraders, 2019[1]). Municipalities rely on property taxes for revenue - the arnona system. These are taxes on the use of a property, rather than its value. These taxes are far higher for commercial and industrial properties than for residential ones, since the national government heavily regulates the latter (OECD, 2017[6]). This incentivises local governments to build industrial and commercial properties, in order to reap greater revenues. As of 2019, Israel has yet to change this, even though correcting municipal incentives for residential property development would make the supply of housing more responsive to demand in a lasting manner (IMF, 2017[7]).

Israel’s response to the housing crisis has been to implement two overarching programmes shortly after the protests in 2011 to increase the supply of housing – the Strategic Housing Programme and the Urban Renewal Programme. Neither of the two programmes developed is statutory. The Strategic Housing Programme aims to build approximately 60,000 dwellings per year, to reach an additional 1.5 million homes by 2040, which is a 60% increase in the existing housing supply from the 2,308,000 dwellings in 2013. The National Economic Council set this overarching target, along with an in-depth analysis of the potential for adding dwellings in each district (EcoTraders, 2019[1]).3 The Strategic Programme places public calls to tender dwellings, yet for the most part, omits criteria on the type of buildings (number of floors, number of rooms in a dwelling) along with any sustainability criteria (EcoTraders, 2019[1]). Specificities of the dwelling remain in the purview of local authorities. The key exception is the Planning and Building law (Amendment 101), which requires plans that add more than 100 housing units, or plans with a density of 7 units per acre, to have at least 20% of units be 80m2 or less (Israel Planning Administration, 2020[8]). In the absence of any sustainability criteria, these tenders could drastically increase emissions across the buildings’ lifecycle (EcoTraders, 2019[1]), discussed in detail below. The Urban Renewal Programme is a densification strategy to: (1) renovate existing buildings by adding floors on top of the existing structure; and (2) to demolish especially old buildings to build new ones with additional units. Uptake of this is very low, since all of the building’s tenants and property owners must agree to participate (EcoTraders, 2019[1]). The government offers loans for retrofits but these are primarily for commercial and industrial buildings. Alternative schemes will be necessary to catalyse retrofits in the existing residential dwellings.

The government also began subsidising housing purchases. Since the housing shortage is leading to mounting prices for would-be homeowners. The price-to-income ratio captures the price of housing relative to annual income, and this is far higher in Israel than for other countries such as the USA, Canada, and Singapore (OECD, 2018[9]). In the US and Canada, the price-to-income ratio is typically around three, while in Singapore it is around five (OECD, 2018[9]). In Israel, it is around eight. In response, the Israeli government launched the “occupant price (mechir lamishtaken)” programme, in parallel to the two programmes above, which sells new housing at a fixed, reduced price, and raffles off the right to purchase the apartments to those without any rights to a home; instead of basing purely on need. The raffle includes married couples, individuals above 35 (those who are bachelors, divorced or widowers), single parents, divorced (without a child) and below 35, handicapped individuals (above 21), and individuals from 26 to 35 (if extra housing units available) (Israel Planning Administration, 2020[8]). There is the option for local authorities to prioritise individuals who live in the local authority for at least 25 to 35 % of available units (EcoTraders, 2019[1]). However, the Times of Israel claims that, “The plan has backfired, failing to deliver on promises of rapid construction and skewing in favour of the more affluent social echelons, who are the only ones who can afford to enrol in lotteries for the more expensive apartments offered in central Israel,” in September 2019.4

Finally, the government also reformed the building permit process. More specifically, it decentralised the process for building permits, so that it only takes approximately five years under Master Plan 1, instead of a decade or longer (OECD, 2017[6]).

3.2.2. Emissions from energy use are stable, but it is difficult to estimate embodied carbon in residential dwellings

The picture of emissions from residential dwellings in Israel is largely incomplete. Emissions accrue throughout a building’s lifecycle from the (1) pre-use phase, (2) the operational phase (i.e., when people are living in the building), and (3) the end-of-life phase (WorldGBC, 2019[3]). Israel only tracks emissions from energy use during the operational phase, which gives a skewed picture of the sector’s contribution to climate change.

  • Emissions from the pre-use phase of a building include emissions from the extraction and manufacturing of raw materials into primary materials (e.g., cement, steel, aluminium, and glass), the transportation of materials to the construction site, and the emissions from the construction of the building (WorldGBC, 2019[3]).

  • During the operational phase, emissions come from energy use (e.g., electricity, heating, cooling) and from the repair and refurbishment of the dwellings (WorldGBC, 2019[3]).

  • End of life emissions occur at the end of a building’s useful life from its demolition and disposal (Abd Rashid and Yusoff, 2015[10]; WorldGBC, 2019[3]).

“Embodied carbon” is the catchall term for all of the emissions from the pre-use, operational, and end-use phase, excluding emissions from energy use in the operational phase. Embodied carbon can account for 10 to 20% of a building’s lifecycle emissions, whilst the rest accrue from energy use (WorldGBC, 2019[3]). Given that the building stock in Israel will rise rapidly under the Strategic Housing Programme and the Urban Renewal Programme, embodied carbon will rise with it. Overlooking this could grossly underestimate emissions; since steel and cement are energy-intensive industries, whose high temperature processes have yet to be decarbonised with commercially viable technology (OECD, 2019[2]). Therefore, better data is needed to grasp the contribution of the sector to Israel’s heavy industry emissions and the rest of embodied carbon. To transition to a low-carbon economy, Israel will need to reduce embodied carbon and emissions from energy-use, aiming to minimise embodied carbon throughout the lifecycle of the building, which will require better data.

It is possible to calculate expected emissions from energy use from residential dwellings, separately from commercial and industrial buildings. The Ministry of Environmental Protection combines all buildings’ emissions in its Assessment of GHG Reduction Potential and Recommended National Targets for Israel (Ministry of Environmental Protection, Eco Traders Ltd. and Ricardo Energy and Environment, 2015[11]). In Brief sets out the assumptions used by that report to understand exactly the emissions that could come from the energy use from residential buildings. Figure 3.1 plots these emissions over time under a BAU scenario; there are two projections to represent emissions from the minimum and maximum number of dwellings that the government expects to build in a given year. Emissions from residential dwellings would cumulatively increase by 278.9 to 281.58 ktCO2e under BAU from 2005 to 2030. Said differently, by 2030, emissions from residential dwellings would equal 0.88 to 0.90 tCO2e per capita. Israel’s 2030 NDC target is 7.7tCO2 per capita, which means that emissions from energy use in residential dwellings per capita would account for 11 to 12 % of the 2030 target. Continuing in a BAU trajectory for residential dwellings would place a greater burden on other sectors to meet NDC targets, given the projections below and that embodied carbon is excluded.

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Box 3.1. Projecting GHG emissions from energy use in the residential sector

The Business-As-Usual (BAU) scenario projects a 1.1% reduction in the energy intensity per dwelling annually until 2030, and specifies an indicative range of the expected increase in residential dwellings. The BAU scenario also assumes 40,000 to 50,000 new dwellings annually until 2020 and 50,000 to 65,000 new dwellings annually until 2035 (Ministry of Environmental Protection, Eco Traders Ltd. and Ricardo Energy and Environment, 2015[11]).The Ministry of Environmental Protection then forecasted future values of the emissions intensity of energy based on historic values from 2000 to 2011 (2012 and 2013 omitted by Israel as outliers). With this information, it is feasible to estimate total emissions from energy use from residential dwellings.

Source: (Ministry of Environmental Protection, Eco Traders Ltd. and Ricardo Energy and Environment, 2015[11])

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Figure 3.1. Projected BAU GHG emissions MtCO2e from the use phase of residential dwellings
Figure 3.1. Projected BAU GHG emissions MtCO2e from the use phase of residential dwellings

Note: Solid line represents observed values and the dotted line projected. Two projections result from the range of dwellings that could be built each year.

Source: Based on the assumptions in (Ministry of Environmental Protection, Eco Traders Ltd. and Ricardo Energy and Environment, 2015[11]).


3.2.3. Location matters: the residential sector can lead to rising emissions in transport

Whether the location of a dwelling is accessible to services and opportunities nearby – e.g. school, work, shopping – directly links to emissions from transport (discussed in detail in Chapter 4). Developing housing in neighbourhoods with access to services and opportunities - whether by public transport, walking, or cycling – avoids private vehicle use (OECD, 2019[2]). In contrast, developing housing without access to such opportunities and services - by means of public transport, cycling, or walking - means households will need to rely on cars, thereby increasing emissions from private vehicle use (OECD, 2019[2]). The greater proportion of location inefficient housing in cities, the higher annual household emissions from car use, as shown in the US in Figure 3.2.

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Figure 3.2. Percent of location efficient neighbourhoods and annual household emissions
Figure 3.2. Percent of location efficient neighbourhoods and annual household emissions

Source: (Center for Neighborhood Technology, 2019[12]).


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3.3. Tackling emissions at the dwelling-level: Deep retrofits and sustainable new builds

This section poses two relevant questions for Israeli policymakers to consider when creating policies to decarbonise dwellings. Even though, these questions appear sequentially, in reality, policymakers will need to think about these in parallel.

  • What policy packages are needed to decarbonise residential dwellings across the lifecycle of a building? This subsection shows that building green does not necessarily cost more for developers and overviews a set of supply-side and demand-side instruments to catalyse sustainable buildings.

  • Who should pay for retrofits of exiting dwellings? This subsection estimates the total financing needed to retrofit existing dwellings, along with possible financial instruments to catalyse this.

Answering these questions will be necessary to ensure that the decisions made in the near-term align with the LT-LEDS low-carbon transition.

3.3.1. What policy packages are needed to decarbonise residential dwellings across the lifecycle of a building?

A suite of policy instruments tackle emissions at different points of a building’s lifecycle. The far left column of Table 3.1 lists the instrument, the rest of columns are labelled by phase and whether the dwelling is existing or new. If the box is coloured, then this means that the instrument could reduce emissions in this phase. Each of the instruments listed in Table 3.1 is explained below in the subsections on demand-side and supply-side policy instruments.

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Table 3.1. Instruments for reducing emissions from residential buildings

Existing residential dwellings

New residential dwellings

Emissions ➜

Operational phase

Post-use phase

Pre-use phase

Operational phase

Post-use phase


policy instruments

Existing Green Building Standards in Israel

Emission limits on dwellings

Carbon pricing on emissions from production

Waste directives, circular economy principles

Demand-side policy instruments

Green and Circular Public Procurement

Green Mortgages

Supply side policy instruments for existing and new dwellings – standards, emission limits, and carbon pricing

Israel could require existing and new dwellings to comply with the currently voluntary Green Building standards as recommended by the Ministry of Environmental Protection (2015[11]) and the World Green Building Council (2013[13]). So far, the uptake of these standards is relatively low and rarely applied to the new buildings under the Strategic Housing Program (EcoTraders, 2019[1]). Israel's main green building standard - SI 5281: Sustainable Building – already sets criteria for energy, land, water, waste, environmental management, transportation, materials, innovation and well-being (e.g., health). Moreover, experts revise this every two years to ensure criteria stays up-to-date and aligns with the Leadership in Energy and Environmental Design (LEED) from the United States. The Department of Energy in the United States reviewed 22 LEED-certified buildings and found CO2 emissions were 34 percent lower and used 25 percent less energy. The buildings also presented 11 percent less water consumption, and diverted more than 80 million tons of waste from landfills.5 Two other noteworthy standards in Israel are SI 5282: Energy Rating of Buildings and SI 1045: Thermal Insulation of Buildings. The former defines specific criteria for a building’s energy consumption including energy-use in the construction phase, while the latter ensures comfortable temperatures in a dwelling while minimising energy consumption for heating and cooling. The advantage of using these is that there is already a procedure in place to review these standards along with technical guidance in Israel, so it is a low hanging fruit.

Better new buildings in line with Green Building standards or alternative designs (e.g., passive house design, for example, using the natural environment for heating and cooling) could drastically lower the emissions in Israel. For example, Pearlmutter, Freidin and Huberman (2007[14]) calculated the lifecycle emissions of different materials for a hypothetical house in the Negev Desert in Israel6 and found that switching building materials significantly lowers demand for energy in the pre-use and operational phases. Replacing clinker (the most emission intensive portion of cement) with fly ash leads to 75% fewer emissions than the traditional Portland concrete – in other words, reducing emissions in the pre-use phase. Moreover, Fly Ash Blocks with or without double insulation – the more sustainable one - also reduces energy demand of a hypothetical building over time compared to the traditional Hollow Concrete Blocks – the solid line – even though, both have the same structural performance in Figure 3.3.

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Figure 3.3. Energy demand over time for hypothetical dwelling in Negev Desert
Figure 3.3. Energy demand over time for hypothetical dwelling in Negev Desert

Source: (Pearlmutter, Freidin and Huberman, 2007[14]).

A major barrier to adopting these designs and materials is that the costs for green buildings are often overestimated. A meta-review by the World Green Building Council (2013[13]) shows that building green – technically, meaning compliant with the LEED standards mentioned above – does not necessarily need to cost more, particularly when cost strategies, programme management and environmental strategies are integrated into the development process right from the start. While there can be additional costs associated with building green as compared to a conventional building, the cost premium is typically not as high as is perceived by developers. Moreover, studies around the world show green buildings – LEED certified – more easily attract tenants and command higher rents and sale prices (WorldGBC, 2013[13]). In the World Green Building Council’s meta-review of the academic literature, the actual cost premiums for green buildings falls within the 0% - 12.5% range (WorldGBC, 2013[13]). The World Green Building Council states Standard 5281 in Israel – Sustainable Building standard - only increases costs by about 3% (WorldGBC, 2013[13]).

The World Green Building Council states Standard 5281 in Israel – Sustainable Building standard - only increases costs by about 3%.   

That said, the World Green Building Council points out that a major obstacle globally is that many industry professionals operate under the general assumption that building green increases design and construction cost by approximately 10-20% (with estimates as high as 29%) compared to the cost of conventional code compliant buildings (WorldGBC, 2013[13]). Therefore, increasing awareness amongst professionals should be a top priority. Educating stakeholders across the supply chain will be essential in the next five years to increase the uptake of these standards.

A complementary action could be to set emission limits for dwellings to catalyse retrofits as well as sustainable new dwellings – these emission limits typically apply to energy use in the operational phase. For example, UK building regulations now target CO2 emissions directly; by setting a Target carbon dioxide Emission Rate (TER), which is an emissions cap of kg CO2 per year per square meter by building type (e.g., dwelling, commercial), size and shape.7 The TER of the building is then used to calculate a Dwelling Emissions Rate (DER) or the Building Emissions Rate (BER) for commercial or industrial properties, again expressed as kg CO2 per m2 per year. Before construction, any new building must undergo a design stage assessment by Building Control Body setting out the expected TER and DER/BER. Within five days of completion, the Building Control Body conducts an “as-built” assessment to verify standards stay within the allotted cap. A similar regulation exists in New York City under the Climate Mobilization Act, which sets emission caps on buildings – residential and commercial/industrial - of more than 25,000 ft2, by requiring them to reduce emissions by 40% below 2005 by 2030.8 Failure to submit an annual report to the City Council leads to 0.50 USD per square foot per month until a report is filed. If the building emissions per square foot are higher than allowed, there is a penalty of 268 USD per square foot. Accompanying these emissions limit is NYC’s retrofit accelerator programme that provides free assistance to property owners on how to reduce emissions – e.g., insulation of walls and roof, better lightbulbs, and so on. The advantage of setting an emissions limit or cap is it enables each homeowner to determine how to best achieve emissions reductions; in contrast, to the Green Building codes above. A similar standard in Israel – 40 % reduction below 2005 levels by 2030 – would save between 3.13 and 3.38 MtCO2e from residential dwellings. In other words, with these savings, total emissions would be 6.5MtCO2e in 2030 compared to the 9.63 to 9.88 MtCO2e under BAU.

An emissions limit on residential dwellings in Israel – 40 % reduction below 2005 levels by 2030 - would save 3.13 to 3.38 MtCO2e compared to BAU.  

Carbon pricing will also indirectly reduce emissions from residential dwellings. Only 1% of Israel’s electricity-related carbon emissions are priced above EUR 5, one of the lowest shares across OECD countries (as discussed in Chapter 2). The bulk of households meet their energy needs with electricity, the price of which is kept artificially low. Putting a carbon price will likely require the Electricity Authority to approve higher (residential) electricity tariffs, improving incentives for more energy efficiency and resulting in less energy during the operational phase of a dwelling (OECD, 2019[2]), which is discussed in detail in the Chapter 2. Likewise, increasing the carbon price on energy would reduce industrial emissions from heavy industry – e.g., steel, cement, and aluminium – during the manufacturing of primary materials (Dechezleprêtre, Nachtigall and Venmans, 2018[15]), thereby reducing the embodied carbon in residential buildings.

Creating demand for sustainable homes – whether retrofitted or new builds

The other side of the coin is to catalyse sustainable houses by creating demand either via (1) green and circular public procurement, (2) green mortgages (also known as energy efficient mortgages), and (3) variable property taxes – i.e., adjusting property taxes based on the property’s sustainability.

The Israeli government is already releasing calls for tenders to build housing, which only specify the number of dwellings but not the quality. A low hanging fruit for Israel is to engage in circular and green public procurement, which will bring wider well-being benefits, while reducing emissions. Israel can use its purchasing power to choose dwellings – and construction practices – that decrease emissions, and could even extend this to circular economy criteria to decreases waste across the lifecycle of the building and increase recycled materials to the greatest extent possible (European Commission, 2017[16]). Moreover, green and circular public procurement can be a major driver for innovation, providing industry with real incentives for developing greener practices and offers (Baron, 2016[17]; IISD and i2-4c, 2017[18]). This is especially true in Israel since 1.5 million homes are planned under the Strategic Housing Programme.

The Netherlands is a best practice example of green and circular public procurement. The government uses the MEAT procedure (Most Economically Advantageous Tender), which awards the tender to the bidder with the “lowest” price. It wavers from traditional tender calls, since bidders monetise two sustainability criteria, (1) CO2e emissions and (2) overall environmental impact, using a standardised methodology (OECD/The World Bank/UN Environment, 2018[19]). This amount – money saved from less CO2e and greater environment sustainability – is then subtracted from the bidders’ offer; thereby, reducing the bidders’ overall price.9 The greater level of ambition, the greater value, and lower bid. In the next five years, Israel could also establish criteria for monetising these gains, so that Israel awards bidders with greater sustainability.

These practices help avoid emissions. For example, closed loop town hall construction in the Netherlands – leased a building for twenty years – that was designed for disassembly, meaning it can be easily taken apart (Kaiser, 2016[20]). This practice helps to recycle these materials at the end of a building’s life, and reduce emissions from the post-use phase of a building during demolition. In addition, Humboldt University in Berlin used recycled aggregates in construction, that saved 880m2 of virgin gravel (i.e., saved raw materials), which reduced emissions by 7% (European Commission, 2017[16]). An example of green public procurement in a climate similar to Israel’s is the Navarra Social Housing10 project in Spain, which reduces emissions from the use-phase of the dwelling. It is building 524 social flats for rent in line with the ‘passive house’ sustainable construction standard between 2018 and 2021. These flats will achieve the highest levels of energy efficiency, with savings of up to 90% and nearly zero consumption. The units are for young and elderly people on low incomes, families with limited means and people in critical need of accommodation. In addition, the construction work will create 298 jobs until 2021.

Green mortgages is yet another tool that Israel can consider using. Better borrowing rates on mortgages if purchasing more energy efficient homes. Thirty-seven major European banks launched a new energy efficiency mortgage pilot scheme;11 about a third of the European banking sector’s assets are in mortgages (WorldGBC and European Commission, 2018[21]). Investments in building performance improvements can help to free-up disposable income for borrowers through lower utility bills and can enhance property value (WorldGBC and European Commission, 2018[21]). As a result, they can reduce credit risk, so they are a win-win for lenders, investors, consumers and climate. Mortgage lenders are uniquely positioned to intervene at critical moments in a property’s lifecycle to support improvement of its quality and energy performance (i.e. when it is built, bought or refinanced). The energy and environmental performance of buildings is not often accounted for in credit risk assessments conducted for mortgages (WorldGBC and European Commission, 2018[21]). Mortgage loans account for 47 % of bank loans in Israel in 2018 (S&P Global Rating, 2019[22]); green mortgages could be a major opportunity for Israel in the next five years.

A related idea is variable tax rates for property based on energy performance. Local authorities use best available data to establish a baseline level of energy efficiency. Properties above a given amount receive a discount on their tax bill, while those below the baseline would have a percentage added. Such a scheme could be constructed to be revenue neutral, with the potential for local authorities to revise the baseline overtime. A number of councils in the UK have put this into practice. Typically, it is a two-phase process: (1) all households have energy performance assessment, and (2) local authorities adopt the relevant thresholds (UK GBC, 2013[23]). In theory, it can also be one-sided where only the reduction is provided instead of a penalty. However, this is no longer revenue neutral, and could be difficult for local authorities who already have constrained budgets. While this does nothing to mitigate the high upfront costs, this could increase the rates of return if the reduction in property taxes were high enough. Of course, then local budgets would need to be supplemented via different means.

3.3.2. Who should pay financing deep retrofits of exiting dwellings?

The starting point when tackling emissions from existing dwellings is whether to retrofit or demolish; methodologies to do this are explored in greater detail in Box 3.1. If retrofitting is the best option, high upfront costs and long payback periods can make retrofits unattractive for homeowners. The rest of this section estimates the financing needs for retrofits and reviews financial instruments to catalyse retrofits.

What are the financing needs for retrofits in Israel?

In the 2015 Assessment of Greenhouse Gas Emission Reduction Potential report, Israel identified abatement measures for existing residential dwellings, all of which were extracted from the Green Building standards mentioned above (Ministry of Environmental Protection, Eco Traders Ltd. and Ricardo Energy and Environment, 2015[11]). Some of these pertain to the building envelope – e.g., improving wall and roof insulation, reflective coatings on windows; while others pertain to the inside of the dwelling – e.g., energy efficient appliances. Table 3.2 lists each abatement measure, along with experts’ estimations of the technology’s present penetration in the existing stock, its potential uptake, and costs. The last column is the emissions reduction potential of each retrofit.

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Table 3.2. How to retrofit existing dwellings

Abatement measures

Current technology

How many dwellings currently use which technology?

How many more dwellings could uptake the new technology?

Costs per dwelling (NIS)

Emissions reduction potential

Install air source heat pumps

Electric resistance heaters


80% of electric resistance heaters could be replaced


Air source heat pumps have COP 3.5, electric resistance of 1, and diesel 0.65



50% of diesel heaters could be replaced

Improve energy efficiency of appliances

EE Refrigerators

Close to 0%



BAU is 290 kWh, abatement technology 135 kWh.

EE Dryers

Close to 0%



BAU is 350lWh and abatement technology is 300.

EE Dishwashers

Close to 0%



BAU is 529kWh and abatement technology is 441.

Reduce heat losses and gains through insulation of wall and roof

Updated to the Green Building Standard




Insulation reduces energy consumption for HVAC by 20% in existing buildings.

Reduce heat losses through window glazing

Updated to the Green Building Standard

Close to 0%


5,000 – 20,000

Insulation reduces energy consumption for HVAC by 4% in existing buildings.

Improve efficiency of air conditioners

Updated to the Green Building Standard

84% of dwellings have AC units



COP 3.8

Install ground source heat pumps

Updated to the Green Building Standard

Close to 0%



Can be 30-70% less energy for heating, 20-50% in cooling

Solar shading of windows

Reflective coatings

Close to 0%



6% reduction HVAC energy consumption

Brises soleil

Close to 0%



6% reduction HVAC energy consumption

Install solar heaters with closed water cycle

Updated to the Green Building Standard




15% reduction in energy consumption

Note: COP stands for Coefficient of Performance. The COP of air source heat pump is the ratio heating and cooling output for the energy that is input. A COP greater than one means that heat pump is performing very efficiency. HVAC is an acronym for heating, ventilating and air conditioning.

Source: (Ministry of Environmental Protection, Eco Traders Ltd. and Ricardo Energy and Environment, 2015[11]).

It is possible to calculate a rough estimate of the total financing needed to retrofit existing dwellings as of 2015 – with the existing building stock of 2,386,000 apartments. We already know the total number of dwellings in 2015; therefore, it is possible to estimate how many dwellings presently use which technologies, what the potential uptake of the technology could be, and a price range from Table 3.2. Using this information, the total financing needed – to implement the abatement measures in Table 3.2 with estimated uptake potential - is roughly 5.5 to 7.55 billion NIS to completely retrofit; roughly 1.4 to 1.9% of GDP in 2019. The cost of a complete retrofit for a single dwelling would be approximately 39,000 to 85,000 NIS. Not every dwelling will need each abatement measure; however, this provides an indicative range of what the upper echelon of a complete retrofit could be (if all the abatement measures in Table 3.2 were implemented).

The total financing needed to retrofit existing residential dwellings is approximately 1.4 to 1.9% of annual GDP (5.5 to 7.5 billion NIS).  
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Box 3.2. Should existing dwellings be demolished or retrofitted?

This question is presented as a dichotomy, but in actuality, practitioners will likely use both approaches to existing building stock, depending on the characteristics of the building. Demolishing and rebuilding will undoubtedly increase emissions from demolition in the post-use phase and in the pre-use phase – e.g., from demolition, material production, and construction (WorldGBC, 2019[3]). Nevertheless, it can be an attractive option for certain buildings since it can drastically reduce emissions from the operational phase of a building via energy efficiency improvements. Retrofitting existing buildings could still be preferable to rebuild depending on the building’s age and characteristics (WorldGBC, 2019[3]). For example, weighing the benefits and costs of retrofits vs. rebuilds by building type in Toronto (Canada), led to the conclusion that basement plus air leakage sealing retrofit is preferable for a 1930s house, basement retrofit for the 1960s house, and no retrofitting for 1980s house (WorldGBC, 2019[3]).

Urban planners, architects, policymakers, typically, do this by using models to compare buildings’ energy and environmental performance (e.g., GHGs, water usage, waste), along with costs (capital expenditures, operational expenditures, capital appraisal for the future), over the existing and new building’s lifetime from construction to demolition (UCL Urban Lab and Engineers Exchange, 2014[24]). Nevertheless, these calculations require assumptions – e.g., the lifetime of buildings, the emissions intensity of energy, even the costs of carbon. Assumptions can be faulty, for example, predicted and actual performance of buildings often differs (referred to as “performance gaps”) (UCL Urban Lab and Engineers Exchange, 2014[24]). This picture is even more complex when assigning value to non-monetary costs and benefits – e.g., quality of life, health, and so on. These models often exclude peoples’ behavioural biases, for example, increases in consumption after an energy efficiency project (the rebound effect). University of College London’s Urban Lab conducted an analysis of different methodologies to evaluate whether to demolish or retrofit – Demolish or Refurbishment for Social Housing: A review of the evidence – which can serve as a guide for Israel (UCL Urban Lab and Engineers Exchange, 2014[24]). Given that, the Urban Renewal Programme incorporates an option for demolition enriching the capacity of local stakeholders to properly evaluate the risks and benefits will be pivotal in the forthcoming years.

The first obstacle to deep retrofits is high upfront costs for households. To place these upfront costs in perspective for homeowners (66.5% of Israelis own their home), Figure 3.4 shows these costs in terms of households’ monthly disposable income (net of mortgage payments and transportation costs). For any household in the bottom three deciles of the income distribution, it is equivalent to more than a year’s disposable income.

High upfront costs are not insurmountable but the payback periods on investment for many of these retrofits are very long, making them unappealing for property owners. Friedman, Becker and Erell (2014[25]) estimate the rates of return on two retrofits to building envelopes for different building types and climatic conditions – (1) roof insulation and (2) insulating the walls. Given current electricity prices and building construction costs, insulating the roof could be a cost-effective strategy but the payback period is 15-30 years in Israel, making it unattractive to most homeowners. Insulating the external walls of a typical apartment results in electricity savings comparable to only one third of the retrofit cost in some cases, and is thus not economically viable.

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Figure 3.4. Upfront capital costs of complete retrofits in terms of monthly household disposable income of property owners in Israel (by income decile)
Figure 3.4. Upfront capital costs of complete retrofits in terms of monthly household disposable income of property owners in Israel (by income decile)

Note: Disposal income is what is left over after mortgage and transport payments.


Table 3.3 estimates the payback periods for insulating the external walls for two types of dwellings – 2-family detached house and apartment building - in the four climate zones of Israel, where payback periods fall anywhere between 12 to 70 years. The table shows the result for the 'private' individual (i.e. disregarding the value of the external benefits to society from the resulting reduction in electricity demand), and the 'total' benefit to society (which is the sum of the private and external benefits12). A point for future work by Israel is to extend this analysis to estimate payback periods for complete retrofits, as specified under the Green Building Standards.

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Table 3.3. Payback time in years on wall and roof insulation in Israel’s four climate zones

Tel Aviv

Beer Sheva











2-family Detached house









Apartment building









Note: In the apartment building, the effect of roof insulation was only reflected in the energy budget of the upper floor.

Source: (Friedman, Becker and Erell, 2014[25]).

One reason for these very long payback periods is because the residential price of electricity is so low – only 0.135 EUR per kWh on average while the average price in Europe is 0.2 EUR per kWh (see Chapter 2). Presumably, if the price of electricity were increased, e.g., to better reflect the social cost of electricity generation via a carbon price, then the payback periods would be shorter. Electricity bills could also increase because of greater use of air conditioning, as temperatures start to increases in Israel with climate change, thereby reducing the payback period.

On top of the long payback periods and high upfront costs, there is even less incentive to retrofit if property owners let out the dwelling. Property owners typically pay for retrofits, but the renters will be the ones who stand to benefit from lower electricity bills, better temperatures, and so on creating split incentives. One way to resolve this is via green leases. Essentially, this involves including provisions in a lease to enable building owners to pass on the costs of building improvements to tenants if the tenants benefit from energy savings. Singapore is a frontrunner in introducing green leases, and the Building Construction Authority even provides a toolkit for property owners and tenants to co-create such leases.13 This toolkit defines three types of greens leases: soft lease, mutual-performance lease, and hard lease. A soft lease is when the tenant and the landowner create a Memorandum of Understanding where each party commits to improving environmental performance, identifies criteria by which performance is measured, and opens an opportunity for property owners and tenants to mutually share their respective environmental performance – i.e., the actions that the landlord and tenant take to improve the sustainability of the dwelling. One step further – a mutual performance lease –sets a performance schedule, where both parties aim to meet targets. Other safeguards will likely need to be included to ensure that both parties share truthful information. A “hard lease” includes the environmental performance requirements as part of the normal lease framework, along with identifying responsibilities and financial obligations.

Green leases could cause affordability challenges for some renters if location is ignored; this could also overestimate GHG reductions. About 33.5% of Israelis rent their homes. Figure 3.5, shows that in 2016, only households in the top three income deciles had access to affordable housing. In other words, only those households spent less than 30% of monthly income on rent (blue bars and blue line in Figure 3.5) (Central Bureau of Statistics, 2019[26]).14 These estimates overlook, however, a key cost for households, which is transport. As stated above, if housing is in inaccessible neighbourhoods, then transport costs will rise for renters. Including public transport and private vehicle costs into these calculations, then households in the top four deciles had affordable housing and transport in 2016 (Central Bureau of Statistics, 2019[26]). In other words, only these households spent less than 45% of their monthly income in these two items, which is the threshold used by the Housing Transport and Affordability Index (red bars and red line in Figure 3.5) (Center for Neighborhood Technology, 2019[12]). Monthly housing and transport costs actually exceeded the monthly income of the lowest income decile in 2016 (these households likely rely on rental assistance or public housing). Therefore, any set up for green leases will need to make sure that transport costs are not underestimated when analysing renters’ payment. In addition, as highlighted above Figure 3.2, location-efficient neighbourhoods are associated with lower car use and emissions. Thus, promoting green leases schemes in areas that are location efficient or are being upgraded to be so, will ensure wider mitigation benefits.

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Figure 3.5. Rent and transport is only affordable for the top four income deciles in 2016
Figure 3.5. Rent and transport is only affordable for the top four income deciles in 2016

Note: Blue bars represent % of monthly income spent on housing costs - includes monthly rent, utilities, plus dwelling and household maintenance per income decile divided by the net income per household in 2016. The blue line is 30%, which is the rule of thumb for how much of a household’s monthly income should go to rent. Red bars represent percent of monthly income on transport. Transport includes public transportation and private vehicle expenditure. The rule of thumb for housing and transport affordability is 45%.

Source: Authors’ calculations using Israeli Census Data from 2016.


Further linking the affordable and sustainable housing agendas through retrofits

As seen above, rental and transport costs remain unaffordable for many Israelis, with access to assistance limited. Herein lies an opportunity for Israel to be innovative and surmount the twin challenges of housing affordability whilst catalysing retrofits. Local governments around the world are crafting innovative solutions to catalyse retrofits; while creating affordable housing. For example, in Rhode Island (USA), House of Hope, a non-profit community-based agency, will pay for retrofits of buildings, e.g., roof replacement or insulation of walls, if the property owner agrees to provide affordable housing units at a rate (equal to that of rental assistance) for a certain period of time.15 Other municipalities in Northeast United States use retrofitting programmes that are part of historical preservation schemes as means to provide affordable housing. Preserving historic properties can revitalise neighbourhoods, enriching the community by creating jobs and even stimulating the local economy (Housing Works RI, 2013[27]). Several states offer a tax credit for up to 25% of the cost for retrofitting historic properties in Rhode Island, Connecticut and in Massachusetts. Such a credit could be increased – or only accessible – if the preservation project includes affordable housing (Housing Works RI, 2013[27]). Certain affordable housing agencies have already adopted this strategy, even though, it is not formalised in the policy. For example, House of Hope in Rhode Island (which faces similar land scarcity issues to Israel) retrofitted an existing historical property, Fair House, where all units are allocated to affordable housing, and managed to recoup 125,000 USD of their investment via the tax credit for rehabilitating historic properties.16

Other opportunities to incentivise property owners to retrofit existing dwellings

Even with green leases, financing instruments will likely be needed to catalyse and incentivise property owners to retrofit. Three such financing instruments are described in detail below: utility on-bill financing, cash-back schemes, and soft loans. The analysis includes an assessment of their feasibility in Israel along with other well-being implications. The findings are summarised in Table 3.4.

Utility on-bill financing, also known as Energy Performance Contracting, is when a utility, such as Israel Electric Company, finances retrofits and recovers the costs through billing. For example, in Nova Scotia, over the past four years, 13,000 households have taken out loans from Nova Scotia Power as part of its Heat Pump programme and paid back on their utility bill (Ministry of Energy Mines and Resources (Canada), 2016[28]). Even though, Nova Scotia is a different climate, the funding scheme should still work in Israel. The Israel Electric Company could offer to finance any of the abatement measures listed in Table 3.2 – e.g., air source heat pumps, solar heaters with a closed water cycle, even improving insulation. The onus is on the occupant of a property – whether the renter or homeowner - to take out the loan from the Israel Electric Company, which could help resolve the challenge of the initial upfront cost for retrofits. Nevertheless, utility on-bill finance may still be unaffordable for low-income households such as happened in the UK Green Deal. In principle, if a household’s energy bills were £1,000 a year when applying for the loan, the reduced energy bill and the loan should have been less than this, however, many low-income users ended up paying more from the outset since they consumed less than average.

Similar to utility on-bill financing, local improvement charges work so that the municipality finances the retrofits and the property owner repays the municipality for the loan through their property tax bill. For example, nearly 400 households installed solar hot water systems using a loan from the city of Halifax, in its Solar City programme (Ministry of Energy Mines and Resources (Canada), 2016[28]). Given the tight constraints on local budgets in Israel already, covering these expenses could be challenging. One of the key sources of revenue for local budgets in Israel is property taxes (as mentioned above). The federal government, however, sets a mandatory range for residential property taxes, which could serve as an obstacle if these improvements push property taxes outside of this predefined band. In addition, such a mechanism may be impossible for households living in the lower deciles of the population (see Figure 3.5).

Another option is to cooperate with third-party investors to provide soft loans for retrofits, which is very different from green mortgages (that offer lower interest rates for more energy efficient homes). The basic principle of soft loans is to enable homeowners to borrow money for retrofits at lower interest rates than standard market conditions. Other amenities that render such loans attractive are longer maturity (enables homeowners to adjust monthly payments according to their financial resources), longer grace periods, and lower administrative as well as insurance costs. Many of these loans enable even low-income households, who would generally be denied loans, the same opportunities as more affluent households by reducing the risk of default on the mortgage (European Commission, 2014[29]). The nature of the relationship between the bank, homeowner, and local government can vary.

  • The first setup is traditional, the city or municipality identifies partner banks to provide the soft loans; the banks check the homeowners creditworthiness, manage the loan (reducing the administrative costs for the locality), but ultimately, the banks decide who can take out a loan, potentially excluding low-income households. This setup is already used in Germany. For example, “Kreditanstalt für Wiederaufbau” (KfW) is state-owned bank, that offers subsidised loans for entire retrofits (up to 75,000 EUR) at interest rates as low as 1% (European Commission, 2014[29]). Scheme started in 2001, now; 2.1 million housing units received finance. The evaluation of KfW programmes for the funding years 2005 to 2009 have shown very positive results, in terms of not only investment, energy savings, CO2 reduction and employment, but also a positive net impact on public budgets (UK GBC, 2013[23]). The refinancing rates of KfW are low due to the good credit rating of Germany; Israel’s credit rating is not as high, meaning that rates would likely be higher than 1%, or Israel could use public budgets to keep rates low.

  • The second setup is when partner banks provide the loans, for example, as used in the Brussels Capital Region (European Commission, 2014[29]), but any homeowner can take out a loan even those with very low income and people with no access to commercial loans are eligible. Brussels Green Loan, a zero to low-interest loan, which helps homeowners to pre-finance energy renovation work.17 Homeowners have a choice between a short-term consumer loan with an interest rate of 0% or 1%, which they have to reimburse in up to 10 years. In this setup, the Brussels Capital Region takes on the risk of payment defaults. This loan is offered by Crédal, a financial cooperative that aims to promote a fairer and more supportive society.

  • A third option is for the locality to disburse soft loans as found in Riga and Delft (Infinite Solutions, 2017[30]). This already exists in some cities in Israel. Tel-Aviv tenants who are interested in renovation can get an attractive loan from the Tel-Aviv Municipality’s economic company to do it with provisions in place for tenants that cannot afford to repay the loan.

Cash-back schemes are popular tools since they drive action, but these come with major challenges such as the significant cost for government and questionable efficacy. Therefore, these instruments may not be the best use of limited resources. Because of high costs, such schemes tend to be a time-limited. For example, the UK’s boiler scrappage scheme; offered vouchers of 400 GBP to encourage the installation of energy efficient boilers; matched by installers – for 800 GBP discount. Take-up of the scheme was quite significant, of the 125,000 vouchers given out, 95% were cashed in (UK GBC, 2013[23]). Cash-back schemes, however, often incentivise single retrofit measures, which can be less efficient in terms of costs and energy, when compared to a harmonised deep retrofit package (Streicher et al., 2020[31]). Deep retrofit package examine a dwelling as a single, integrated system rather than as a collection of standalone systems. With respect to costs, single retrofit measures can lock-in technologies, increasing costs of retrofits in the future as seen in United States and Germany (Streicher et al., 2020[31]). With respect to energy, neglecting to look at the system as whole means that potential synergies may be overlooked. For example, “improving the building envelope, providing solar heat gain control, and improving lighting systems could substantially reduce a building’s heating and cooling energy demand. This would in turn reduce the required size of duct systems, air-handling units, boilers, and chiller,” (Alexander Zhivov et al., 2017[32]).

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Table 3.4. Summary table of financing options for deep retrofits


Who loans?

Who repays?

Well-being implications

Feasibility in Israel

Utility on-bill financing

Utility company

Resident of property via utility bills

Affordability for low income residents due to increased utility bills

Local improvement charges


Property owner via property taxes

Affordability for low-income property owners due to higher property taxes

Constrained budgets of municipalities in Israel; split incentives between property owners and tenants since the property owner pays, but the tenant benefits from less utility bills

Soft loans


(identified by the municipalities); typically offering loans at very low interest rates

Property owners

Excludes low-income households (e.g., elderly, the young)


Municipalities subsidise interest rates, guarantee fund, and pay the banks’ operating costs.

Property owners pay the loan

Split incentives problem remains, and overcoming the constraints on local budgets


Property owners

Split incentives problem remains, and overcoming the constraints on local budgets

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3.4. Beyond the dwelling: Compact development with integrated infrastructure and green space considerations

So far, Israel’s response to the housing shortage is leading to greater sprawl, low-density development and poorly integrated infrastructure across municipalities/cities; all of which generates growing emissions (OECD, 2017[6]). The Israeli Ministry of Planning Administration revised its guidelines to permit construction in the periphery of cities in response to the housing crisis - re-appropriating considerable land reserves. In addition to rezoning agricultural land,18 leading to a gradual degradation of the land around cities. Moreover, there is a mismatch between the location of these newly built dwellings and where Israelis wants to live (OECD, 2017[6]; EcoTraders, 2019[1]). New housing is being developed on state-owned land in rural areas, while the majority Israelis prefer to be in urban centres, where the land is under private ownership (OECD, 2017[6]).

A two-way strategy to accommodate future growth in a sustainable way will be needed (see Section 3.4.1). On the one hand, revising minimum density requirements (presently ongoing in Israel) in addition to incentivizing land infill and redevelopment in urban cores19 can help create compact cities that not only help to attain mitigation objectives but also advance wider well-being by providing better connectivity to goods, services, job and leisure opportunities. However, given the expected future growth in cities, all of these strategies will need to be accompanied by sound actions to plan for some peripheral development, so that this is also consistent with the objective of building compact cities. Moreover, increasing densification brings the need for services and infrastructure to support it, and green space to curb heat island effects. Heat islands can inadvertently increase emissions because of rising energy needs for cooling on hot days. Ideally, housing developments would not only be integrated with green infrastructure, but also with sustainable mobility, embedded energy, water and waste infrastructure; i.e. it would be planned as eco-districts.

One catalyst of urban sprawl is strained local finances, which will be discussed in Section 3.4.2. Israel would benefit from enhancing local financial and technical capacities. Besides decentralising the budget and increasing the local tax base, the frameworks for a number of financial instruments could also be developed to widen local financial capacity. Among these are development charges, land value capture mechanisms, pool funding, and business improvement districts (all of which are explained in Section 3.4.2).

3.4.1. Managing growth to develop compact and sustainable cities

The population in Israel’s urban areas is expected to grow exponentially in the coming decades. Under these conditions, both curbing urban sprawl and accommodating inevitable growth will be paramount to creating sustainable cities. A wide range of cities in OECD countries physically contain growth through urban containment boundaries, such as green belts or urban growth boundaries, but this may not be the optimal response in Israel. Angel et al (2010[33]) shows that strictly limiting growth by setting containment policies can be counter-productive, especially in fast-growing urban areas. Greenbelts can cause leapfrogging, i.e. developments “jumping” the belt and can also increase housing and land prices, as in Korea and the UK (OECD, 2015[34]). Pressing demand for housing or ineffective policies inside city cores, such as slow permitting processes or stringent regulations can further exacerbate this challenge. Therefore, a two-way strategy to accommodate future growth in a sustainable way should be adopted. In the next sections, we will, first, present policies that foster compactness and allow to sustainably absorb growth inside urban areas, and then strategies to smartly guide additional growth in the periphery. It is important to signal that even when not using explicit green belts, protecting and restoring green areas and ecosystem services should be part of strategic planning for urban core redevelopment as well as development of any peripheral areas.

Renewing and densifying urban cores

It is paramount that existing urban cores in Israel develop in a pattern that is compact and sustainable. This requires development to be dense with mixed land-uses, both of which are important enablers to create proximity and facilitate sustainable mobility, which ultimately allow enabling access to services and opportunities (see Box 3.2) (OECD, 2012[35]). However, compact cities can generate trade-offs with respect to the affordability of housing, as well as heat island effects. In addition, increased densities in cities should be supported by an adequate level of infrastructure, such as water and waste management as well as public services.

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Box 3.3. The role of urban form on cities’ GHG emissions

Urban form is an important determinant of GHG emissions from cities. Several empirical piece of work have found that the urban form and related characteristics such as density, land-use diversity, destination accessibility, and distance to transit also influence mode choice, trip frequency, trip distance and then vehicle kilometres and GHG emissions (Lee and Lee, 2014[36]). Urban form can be characterized through three dimensions: (i) population density and its geographical distribution; (ii) centrality i.e. which measures the concentration of an urban area population near the central location, as opposed to being located at urban fringes; and (iii) polycentricity i.e. the extent to which services and functions of urban centres (economic, commercial, recreational) are distributed between the main business centres and subcentres (Lee and Lee, 2014[36]). These dimensions shape urban areas either in a sprawled or compact way. The OECD defines urban sprawl as an urban development pattern characterised by low population density that can be manifested in multiple ways: (i) low population density; (ii) high average population density but unequally distributed, leading to zones with extremely low density levels; (iii) fragmented, discontinued and decentralized developments (OECD, 2018[4]). Compact cities are characterized by density and proximity in terms of development patterns, strong urban linkages to public transport systems, and accessibility to services and jobs (OECD, 2012[35]). In addition to these density-related features, diversity of land-uses is also an important feature of compact and smart cities.

Density and mixed-land uses are an enabler of proximity as well as of an integrated and viable mobility system, both of which enhance accessibility - defined as the ability to reach destinations using a given transport mode (ITF, 2019[37]) - and ultimately foster compactness. Based on this definition, Figure 3.6 outlines a framework which illustrates the interlinkages between (i) density and mixed land-uses, (ii) proximity and well-functioning urban mobility systems, (iii) accessibility and (iv) compactness and overall sustainability (which includes climate change mitigation objectives). The dynamics created by these different elements allows in particular to reduce GHG emissions, since it allows people and goods to move in an optimal manner and privileging more sustainable transport modes, which are under these circumstances more competitive for reaching destinations than private cars. As such, population living in compact and transit-oriented cities tend to drive less that those living in sprawling ones.

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Figure 3.6. Framework for compact and sustainable cities
Figure 3.6. Framework for compact and sustainable cities

Note: Proximity is measured by the number of opportunities within a certain distance (ITF, 2019[37]); The quality of mobility by the ratio of absolute accessibility to proximity; accessibility by the easiness to reach destination within a number of minutes.

The rest of this subsection will outline policies that foster compactness and allow for absorbing urban growth as much as possible, while maintaining affordability and ensuring the provision of green space and adequate level of infrastructure to keep pace with densification.

Relaxing stringent density regulations

Maximum density restrictions are common in urban areas inside OECD countries - e.g., building height restrictions or limits on building floor-to-area ratios - but these often stymie densification. Israel already uses minimum density requirements, which are presently undergoing revision to be increased. Zoning with minimum densities in cities helps to cluster services and opportunities for residents, as well as to generate economic gains over time within the designated area (OECD, 2017[38]). In particular for public transport, minimum density standards help advance the development of functional and economically successful transit-oriented districts by creating a sufficient population of residents in proximity to transit stops (OECD/ITF, 2017[39]). Minimum densities catalyse transit investments and expand opportunities for accessible housing developments, both of which reduce emissions. The average density in Israeli cities is far lower than other European cities, which makes it challenging to have integrated infrastructure with transport. Tel Aviv has a density of 8,565 people per square kilometre and Jerusalem, 7,186 people per square kilometre. In comparison, the density of Paris is nearly triple the average of that in Jerusalem and Tel Aviv, while that of Barcelona is four times higher.20 The Israeli government is raising the permissible density, for example, as part of the Urban Renewal Programme, which targets old neighbourhoods constructed before the 1950s, and allow the demolition of old neighbourhoods to reconstruct at much higher densities (OECD, 2017[38]). If the densities in cities remain too low, and public transport and facilities for active modes are not significantly enhanced, residents will continue to rely on car ownership, and anyone without a car will have difficulty accessing facilities and services. Fostering density, mix land-uses and proximity will be as important as improving public transport and facilities for active transport for reducing emissions form Israel’s urban areas.

Fostering sustainable urban infill by incentivising land development and promoting urban regeneration that revitalizes neighbourhoods

An obstacle to higher densities in cities in Israel is private landownership, since these owners can hold on to their land to speculate for higher prices (OECD, 2017[38]); therefore, policies incentivizing land development, such as land assembly or targeted fiscal tools will be needed in the next five years. Assembling land means combining private smaller parcels of privately owned land. The key feature of land assembly is that it changes land ownership to enable property development and infrastructure provision (OECD, 2018[4]), by ensuring that holding onto land is less attractive than selling. Arch (2014[40]) argues that the key to solving this hold out problem in Israel is for the municipalities to develop a clear plan outlining what they project to do with the land21. Announcing these plans publicly means private owners can capture the value increase of the land when selling, so that holding on to their plot of undeveloped land will be far less desirable. In parallel though, municipalities will need to start taxing the owners on the new monetary value of the property (Arch, 2014[40]). In the case of Tel Aviv, increasing the value of a parcel of land to allow for six stories from an undeveloped plot would raise taxes six fold (Arch, 2014[40]). The potential changes in tax rates can also open an opportunity for mechanisms such as Tax Increment Finance (TIF), which is a tool that anticipates future tax revenues increases and raises capital for investments occurring in the present. TIF is, for instance, used in London to fund transport infrastructure such as the Northern Line underground extension (ITF/OECD, 2017[41]).

The increase in land value can be an important element to incentivise private owners to sell rather than keep hold of undeveloped land. Land assembly (and other land-value capture mechanisms) can also be strategically used by the government or local municipalities in Israel to capture a portion of the land value increase, which can then be channelled towards well-being objectives. The logic being that infrastructure developed by the government to support redevelopment is paid for using public funds; therefore, a portion of the increase in land value should also be invested to advance general well-being.

One good practice example is the Metrovivienda programme in Bogota, which aimed at providing affordable housing to low-income populations, especially those living in informal settlements (OECD, 2014[42]). In the first phase of the programme, the government used a land-banking mechanism and acquired privately-owned land, by negotiating with landowners in areas that were to be served by the future Bus Rapid Transit (BRT), the Transmilenio (Cullen-Cheung, 2003[43]). It then sold the land to private developers for the construction of affordable housing near the BRT stations (Cullen-Cheung, 2003[43]). In the second phase, after having faced a certain number of challenges, Metrovivienda associated with landowners instead of buying parcels directly (Gilbert, 2009[44]). Through this association, the government serviced the land by developing infrastructure, schools and parks, and provided landowners the difference between the final sales price and the cost of servicing the area (Gilbert, 2009[44]). Landowners received compensation in nature, i.e. serviced land (Gilbert, 2009[44]).

Overall, through this land value capture programme, the city managed to provide needed infrastructure and relocate low-income households, that used to live in informal and illegal settlements in the periphery, into liveable and transit-friendly neighbourhoods well connected to the rest of the city (OECD, 2014[42]), contributing thereby to GHG emissions reduction from transport. Overall, Metrovivienda improved populations’ livelihoods, thanks to enhanced accessibility to opportunities and decreased transport expenditures, while fostering transit-oriented development. Developing and communicating long-term plans in the short-term will be an important basis for implementing successful land assembly programmes. In addition, exploring the potential of using different land-value capture mechanisms and developing comprehensive standards will be key to unlocking the potential for redevelopment projects to meet multiple well-being goals (including climate).

Urban infill can also incentivize land development, especially of privately-owned parcels in city cores in Israel. A national tax on vacant land used to be applied but was rescinded in 2000 (OECD, 2017[38]). The Knesset22 found it questionable, and it was perceived as generally unfair for landowners who were unable to develop their land (e.g. lack of permitting procedures, or when situated near sensitive areas such as archaeological or industrial sites) but were still charged a tax (Haarets, 2012[45]). The cancellation of this tax, however, allows private landowners to speculate and keep their land undeveloped. An alternative policy tool that for Israel is split-rate property tax, which sets a higher rate on the value of land, and a lower rate on the value of a dwelling and its improvements (OECD, 2018[4]). Applying a higher rate on land discourages undeveloped land, prevents land speculation, thereby curbing urban expansion outside the city (OECD, 2018[4]), in addition, to incentivising developers and owners to build higher buildings or to upgrade their properties.

However, implementing such split-rate property taxes can be challenging. First, one difficulty lies in the fact that it can be administratively complex to assess the value of land and to separate it from the value of the dwelling built on it (OECD, 2018[4]). In addition, their implementation can raise political economy issues, as developments that have a high land-to-improvement ratio, i.e. the ratio of the land value to its improvements, such as car dealerships and other land-intensive uses, tend to face higher levels of taxation with a split-rate tax (Cohen and Coughlin, 2005[46]). In contrast, developments with low land-to-improvement ratio such as high-rise residential buildings tend to be advantaged (Cohen and Coughlin, 2005[46]). Despite these challenges and the low level of awareness and application so far - mostly concentrated in the United States (OECD, 2018[4]) - their potential for incentivizing densification are strong, especially when applied to the residential sector.

Regenerating cities’ urban cores in Israel, especially in old ones, will be paramount in reaching desirable levels of density and compactness. The Ministry of Construction and Housing already includes an Urban Renewal Government Authority (Israel Planning Administration, 2020[8]). Their activities could include the redevelopment of brownfields, which can bring significant benefits to communities and cities by increasing housing supply. Putting in place planning tools that identify and promote the redevelopment of brownfields will be central to reinforce regeneration strategies. The Israeli Planning Administration (IPA) already promotes leading projects and guidelines.

An example of a policy tool that the IPA or Israel’s cities could put in place is the Opportunity Area Planning Framework (OAPF) in London. The OAPF aims at transforming and regenerating “opportunity areas”, which are identified brownfield land in town centres that have “significant capacity to accommodate new housing, commercial and other development linked to existing or potential improvements to public transport accessibility,” (Greater London Authority, 2019[47]). The OAPF document sets guidance for both developers and local communities on the way planning decisions and developments should resolve a wide range of issues such as density optimization, infrastructure provision, accessibility enhancement, and overall design (Designing Buildings, 2016[48]). Opportunity Areas can accommodate around 2,500 homes and 5,000 jobs or a combination of the two, and can support additional infrastructure (Greater London Authority, 2019[47]). Feasibility for implementing the OAPF is made possible thanks to the strong role the London Mayor has in encouraging and incentivizing their development through support and leadership, by providing in-house expertise or partnering with boroughs in steering groups (Greater London Authority, 2019[47]).

Another good practice example is the Stockholm Royal Seaport project, which is a formerly contaminated brownfield, transformed into a vibrant and energy-efficient district offering a variety of mixed-uses and integrated infrastructure (ECODISTRICTS, 2013[49]). The aim of the Royal Seaport project was to address both projected population growth and climate change. While Stockholm is planning to become fossil-fuel free by 2040 (City of Stockholm, 2016[50]), the Royal Seaport has set a more ambitious target to become fossil-free by 2030 (ECODISTRICTS, 2013[49]). The City Council invested more than 150 million USD to decontaminate the land, and sold the land, at a price higher than the invested funds, to private developers who should meet requirements in line with the city’s sustainability targets, building and planning requirements (ECODISTRICTS, 2013[49]). While affordability remains an important issue due to the high land prices, the Royal Seaport has gained worldwide recognition for being an example of urban design that contributes to both GHG emissions reductions and overall wellbeing.

Along the same lines, fostering the development of eco-districts (also called eco-neighbourhoods or sustainable neighbourhoods) that embed integrated planning systems for buildings, transport, and supporting infrastructure such as energy (in particular through the deployment of renewable energy), waste and water (Fraker, 2013[51]) is an opportunity to redevelop brownfields and decarbonize existing neighbourhoods, and also to promote them in new areas. The eco-district concept is gaining momentum in Israel, even though their nature varies. The Northwest District in Tel Aviv envisions a transformation into a neighbourhood that will produce its own renewable energy, mainly from solar sources (City of Tel Aviv-Yafo, 2017[52]). The Municipality of Tel Aviv, with the support of the Environmental Protection Authority, the Education Administration and Community Administration, strongly promotes the upgrading of neighbourhoods into sustainable ones, through its “From an existing Neighbourhood to a Sustainable Neighbourhood” Programme (Tel Aviv-Yafo Municipality Environment and Sustainability Authority, 2018[53]). This initiative is based on the One Planet Living model, which is a worldwide programme promoting sustainable modes of living, the protection of natural areas and renewable energy generation (Tel Aviv-Yafo Municipality Environment and Sustainability Authority, 2018[53]). To date, there are seven neighbourhoods, such as Bizaron and Yad Eliyazu committed to the Sustainable Neighbourhood programme23 (Tel Aviv-Yafo Municipality Environment and Sustainability Authority, 2018[53]), financed from the municipality’s own funds24, and the aim is to progressively extend it to all neighbourhoods across the city. Therefore, in the next five years, Israel could upscale the transformation of neighbourhoods into eco-districts.

The Israeli government could catalyse this by providing a centralised stream of funding as occurred in Malmo (in Sweden), a former industrial city turned into an eco-district. The city applied for funding from national and European sources to realise their vision. A total of SEK 250,000,000 (91,497,500 NIS) was awarded to the city for various projects – e.g., green infrastructure, construction of more energy efficient buildings, or information and knowledge dissemination (Fraker, 2013[51]). An European grant (included in the total) helped to finance the energy system in the Western Harbour, which allows the city, in cooperation with Skydraft, the utility company, to come up with a plan to locally produce electricity with wind, solar, and geothermal (European Commission and European Environment Agency, 2016[54]).

In other cities (with similar climates to Israel’s), eco-neighbourhoods not only resulted in environmental benefits, but also helped residents save money, for example, Trinitat Nova, a neighbourhood in Barcelona (Spain). In the 1990s, the residents of Trinitat Nova agreed on a major regeneration project to transform their rundown neighbourhood into a sustainable, eco-neighbourhood place to live (Flurin, 2017[55]). Trinitat Nova was constructed in the 1950s for rural immigrants, without proper urban planning and poorly connected to the rest of the city (European Urban Knowledge Network, 2010[56]). It had around 3,200 dwellings built with poor quality and energy inefficient materials (European Urban Knowledge Network, 2010[56]). The upgrade of Trinitat Nova to an eco-neighbourhood cost approximately EUR 16.2 million, 50% funding from the municipality of Barcelona and the rest from the European Regional Development Fund (LPED, n.d.[57]). The regeneration of Trinitat Nova rebuilt dwellings in a sustainable way by integrating passive designs, thereby reducing energy demand (and related expenditures) from cooling during hot summers, and heating during winter. The project set out clear objectives in terms of energy efficiency: (i) reduction of energy demand, (ii) replacement of fossil-fuel energy with renewables when technically possible, and (iii) promotion of solar energy for hot water (Alternativas, 2004[58]). The neighbourhood added green infrastructure, and it is estimated that the vegetation of Trinitat Nova sequesters up to 150 tonnes of CO2 annually (Alternativas, 2004[58]). All of which increases the life quality of residents, in addition to extending the public transport network to make the neighbourhood accessible.

Putting in place similar frameworks or programmes in Israel can allow it to transform rundown neighbourhoods into vibrant areas offering housing, economic and environmental opportunities, while enhancing inhabitants’ well-being.

Removing existing barriers that hamper the provision of affordable housing

In addition to relaxing density restrictions and urban infill, removing structural barriers that dampen the provision of affordable housing in Israel will be key for inclusive urban areas. The availability of public housing is rather limited as noted by Israel Planning Administration (2020[8]); available housing is intended for population in financial (lowest social-economic status) or functional disadvantages (i.e., disabled persons), who do not own a home, lack housing and meet housing criteria. One important barrier for low-income population, according to OECD (2011[59]), is the complex point system that rewards access to public housing, where households need to score at least 1400 points to be eligible. For example, a couple married for five years (receives 450 points) with three children (500 points) will pass the points test for public housing if they have at least five brothers and sisters (600 points), but not if they have four or less siblings (400 points) (OECD, 2011[59]). The reason used to justify this is that children of large families are likely to receive less support than children from small families (OECD, 2011[59]). The eligibility system should be simpler; according to recommendations from the 2011 and 2018 OECD Economic Surveys (OECD, 2011[59]), (OECD, 2018[60]), for instance by removing points for siblings, since this is an inaccurate measure of parental support.

However, purchasing a home is not always feasible nor a priority for certain segments of the population (e.g. young students), which makes the provision of rental a key area of policy intervention. Strengthening rental opportunities for low-income population across cities and enhancing existing targeted rental assistance will be an important area of action in the short term. Rental assistance from the Ministry of Construction and Housing is the most common form of support (accounting for approximately 36% of the ministry’s budget in 2010); however, the system is complex with narrow eligibility (OECD, 2011[59]). Rental assistance is primarily targeted at new immigrants who, regardless of need, receive rental support for the first five years of settlement in Israel (OECD, 2011[59]).

The availability of Public Housing is also rather limited and is mainly reserved for population in financial (low income) or functional disadvantages (i.e. individuals with some kind of physical or mental limitation), who do not own a home and lack housing. The Ministry offers additional support for the wider population through: a)“Supervised” Long-Term rental apartments at market prices for up to five years (no eligibility criteria); and b) “Reduced” Long-Term rental apartments below market prices and according to the eligibility criteria set out by the “Buyer’s Price” programme (Israel Planning Administration, 2020[8]). The latter is a programme that targets those without any rights to homes, namely married couples; individuals above 35 (bachelors, divorced or widowers); single parents, divorced (without a child) and below 35; handicapped individuals (above 21), and individuals from 26 to 35 (if extra housing units available) (Israel Planning Administration, 2020[8]). Putting in place a mean-tested uniform scheme that widened the range of beneficiaries across the societye.g. by including students, young households and based on affordability analysis would help making the policy more effective in terms of use of public funds.

In addition, the challenge of providing rental opportunities is exacerbated by the phenomenon of vacant homes i.e. that are empty most of the year - so called” ghost homes”. Vacant apartments limit rental opportunities for low-income population and artificially increase housing prices, especially in big cities such as Jerusalem, Haifa, and Tel-Aviv which have the most important concentration of ghost homes (Haaretz, 2016[61]). In addition, land scarcity and high prices can discourage developers to build affordable housing in central areas. More people outside the city and living far from opportunities and services can lead to increased GHG emissions from transport and higher transport expenditures. Policies supporting rental and incentivizing developers to construct affordable housing in central areas will therefore be key.

In 2011, a national commission, the Trajtenberg Committee, was put in place in response to the housing crisis occurred during the same year, and one of its task was to examine the magnitude of the phenomenon of ghost homes. The Committee has found that more the 46,000 homes were empty (Haaretz, 2013[62]). As a response and in line with the Committee’s recommendations, the Ministry of Interior has put in place in 2013, a strong policy to double-tax vacant homes, as a way to encourage homeowners to either sell or rent (Haaretz, 2013[62]). However, this law has proved to be ineffective, as only a very small number of homeowners25 had been formally identified and received notifications that their tax would be doubled. Officials have not been able to identify the majority of ghost apartments, because the only tool at their disposal was water bills (Haaretz, 2016[61]). One solution proposed to the Knesset by a deputy was to give city officials access to electricity and gas bills to be able to find more empty homes (Haaretz, 2016[61]). However, using utility bills can be inefficient, as homeowners can set automated lighting or watering systems in order to avoid paying this tax (OECD, 2017[38]). Moreover, as of end of 2018, new estimations have been made by the Central Bureau of Statistics and the number of empty homes was thoroughly revised to more than 170,000 (Globes, 2019[63]). This has further emphasised the urgency of putting in place effective measures and strengthening the administrative capacity of municipalities for better implementing the double-tax policy. One option authorities in Israel should consider is to provide more budget transfer from national government to face this additional administrative burden at municipal level. Another option for tax authorities would be to use existing treaties with other countries that would allow to have access to more exploitable administrative information beyond utility bills - so the proof of non-residency can be established using rules that govern tax residency in Israel (OECD, 2019[64]) - such as the international framework as part of the OECD/The Global Forum on Transparency and Exchange of Information for Tax Purposes underlying a convention for automated tax information sharing (OECD, 2018[65]).

Inclusionary Zoning policy can also be a policy option to promote the provision of affordable housing inside urban cores, especially for rental. Inclusionary zoning encourages developers to include, for new developments, a proportion of affordable units for low income population, either for homeownership or for rent. In exchange, it allows for denser construction (see related discussions above on relaxing stringent density restrictions) or an accelerated permitting through a fast-track process that reduces the time and costs for new developments (New York University, 2008[66]). The incentives can also be tax abatements (OECD, 2015[34]). The affordable units can be part of new developments in the same site, or be located elsewhere (off-site) (New York University, 2008[66]). As an alternative, developers can also pay in-lieu fees to local authorities, who can use them to build affordable housing (New York University, 2008[66]). However, mandatory affordable housing provision can cause developers to build in other localities where such regulations are not imposed, thereby causing urban sprawl. Alternatively, there are programmes that use a voluntary approach, i.e. requiring developers to build affordable units only if they choose to use the incentives (Lincoln Institute of Land Policy, 2015[67]). Inclusionary zoning that uses the permission to build with a higher density as an incentive should apply in areas where higher level of density or new constructions are desirable and feasible, with respect to the capacity of maintaining or upgrading existing infrastructure, and looking at other social considerations such as the potential added crime level (OECD, 2015[34]).

Guiding future development by planning for smart urban growth

As explained in the previous section, physically containing urban growth is not an effective climate mitigation strategy in Israel, as urban areas will need to expand to accommodate population growth. To illustrate, in 2004, despite pressures from environmental advocacy groups, a greenbelt in West Jerusalem was transformed into a neighbourhood, in order to face enormous demand for housing (Haaretz, 2004[68]). Therefore, anticipating future urban growth by putting in place timely planning strategies is key for cities in Israel to make sure that their urban footprint evolves within a sustainable pattern. Complementing density regulations and urban regeneration policies outlined in the section above with strategies that anticipate and allow for sustainable growth in peripheral and less urbanized areas will be paramount. This needs to be done while ensuring sound coordination across relevant sectors and actors through enhanced integrated planning (OECD, 2015[34]).

According to Angel (2008[69]), preparing for growth in less urbanized zones or peripheral areas entails establishing visionary planning through an arterial grid of roads, sufficiently spaced one from each other by 1 kilometre (OECD, 2015[34]). This spacing will allow to carry, in the future, public transport infrastructure, and will ensure that residents, will be less than a ten-minute walk from transport stations, which have both environmental and well-being benefits. Guiding future residential developments along large arterial grids would ensure that residential developments are sufficiently dense to sustain public transport, while contributing to lower GHG emission from transports due to transit-oriented developments. In addition, the roads should be sufficiently large (from 60 to 100 feet wide) so that they can include bus and bike lanes (Fuller, 2012[70]), i.e. so that a complete street approach can be adopted (see chapter on transport). In order to support the growth, cities will need to create green space, water and waste management (see next section), and telecommunication networks (Fuller, 2012[70]). This planning is particularly relevant in Israel, where most of peripheral land is publicly owned. The Israel Planning Administration already developed policies for densification along mass transportation lines in the Tel Aviv and Jerusalem metropolitan areas. Areas along these routes will reportedly be developed as dense and mixed-use areas (Israel Planning Administration, 2020[8]).

When planning for future growth, as already recognised in the cities of Tel Aviv and Jerusalem, setting zoning plans that require mixed land uses is pivotal in fostering climate-friendly developments. Mixing residential buildings with shops, services and jobs create vibrant communities and allow cross-fertilisation of ideas and cities’ economic vitality. Curitiba, has put in place pioneering transit-oriented developments approach by setting zoning regulations that foster mixed-used, high-density, and vibrant communities along the main public transport corridors (ICLEI, 2016[71]). For example, the City’s Zoning Plan requires that at least 50% of ground, first and second floors buildings near transport corridors be occupied by commercial services, shops and restaurants, creating thereby lively communities (ICLEI, 2016[71]). In addition, Curitiba put in place an inclusive zoning by designating Special Social Interest Housing Sectors for low-income population, and no-car zones dedicated to walking, contributing thereby to social inclusiveness and climate protection (ICLEI, 2016[71]).Following these principles will be especially important when developing any new peripheral developments to ensure they contribute rather than hinder climate and other well-being goals.

Furthermore, guiding future developments along existing or future transport infrastructure is an opportunity to promote integrated planning encompassing land use, housing, environment, and to align policy priorities around accessibility to jobs and opportunities, affordability of housing, sustainability and economic growth (OECD/ITF, 2018[72]). The development of long-term strategic planning tools is key to ensuring co-ordination between residential, transport and other key infrastructure as cities grow and evolve. In the UK, London shows a strong planning framework composed of three main pillars: the London Plan (the spatial development strategy), the Economic Development Strategy (EDS) and the Mayor’s Transport Strategy (MTS). The three documents are developed with strong links between them (e.g. the MTS is based on emerging policies set out in the both the London Plan and the EDS, while the London Plan addresses planning policies and the way these can facilitate or hinder the transport’s system capacity to cope with emerging trends) (OECD, 2016[73]).

Transport for London (the Metropolitan Transport Authority) has also put in place tools explicitly linking transport, housing and wider land use and thus supporting coordinated planning for new development. This is done using the Public Transport Accessibility Levels (PTAL) indicator and the Sustainable Residential Quality Matrix (see next subsection for further explanation) (OECD/ITF, 2018[72]). In France, the Île-de-France Mobilités (the MTA in charge of the Paris metropolitan region) develops the Plan de Développement Urbain Île-de-France (PDUIF), which is the Île-de-France’s region mobility plan (OECD/ITF, 2018[72]), promoting a sustainable transport sector, and strongly linked to the Territorial Coherence Scheme, the SCoT, the region’s strategic plan for urban planning, housing, and economic development (OECD/ITF, 2018[72]). Metropolitan level bodies (addressed further in Section 3.4.2 and Chapter 4 on transport) have proven successful in developing strategic planning capacity, which on the one hand builds on relevant knowledge of local issues but on the other is embedded in a wider vision that can better balance priorities and strategies across metropolitan areas.

At neighbourhood level, fostering the uptake of eco-districts, which present similar features in terms of integrated infrastructure planning (discussed in above section) can be a strategy for Israeli municipalities when expanding into non-urbanized or less urbanized areas.

Accompanying urban growth with the provision of infrastructure

With denser cities and neighbourhoods comes the need to provide adequate levels of infrastructure, such as public services for transport, water and waste management, educational and health facilities, and green space to avoid urban heat islands effects. In particular, after the government’s decision to increase minimum density requirements, the provision of infrastructure became a hot topic in the public realm (Globes, 2019[74]). In order to avoid situations where infrastructure is lacking as cities densify, residents in a wide range of cities are advocated for “retrained construction”, i.e. infrastructure before construction (Globes, 2019[74]). In some cities, mayors who focused on constructions rather that the provision of infrastructure was sanctioned during elections (Globes, 2019[74]).

Therefore, strengthening the existing rules for infrastructure provision when providing housing in Israel will be paramount for sustaining the exponential urban growth projected. The London City Hall put in place a policy for optimising housing potential, using a Sustainable Residential Quality (SRQ) density matrix that sets ranges of acceptable housing density, depending on the urban zone features (suburban, urban, or central) and accessibility to public transport through the Public Transport Accessibility Level (PTAL) developed by Transport for London (see Chapter 4 on transport) (Greater London Authority, 2019[75]). As such, the higher the PTAL is, the higher the residential density can be. The SRQ is also in line with the City’s wider policy guidance that requires the adequate provision of social infrastructures such as health services, water facilities or green space (Greater London Authority, 2019[76]). Incorporating transport considerations into development standards is also a good way of aligning planning of transport and development and can be done by building in indices like the PTAL.

Land value capture mechanisms, such as betterment levies, can also be put in place to provide or maintain infrastructure as cities densify. Betterment levies are a tax paid by landowners or beneficiaries, and applied on land or properties that have seen an appreciation of their value thanks to public infrastructure investments (The World Bank, 2019[77]). The levy can be paid on a one-off or a recurrent basis, and aims at sharing the benefits of public investment to the overall community. A wide range of countries have implemented the betterment charges in various forms. For example, in Colombia, the levy is called Contribución de Valorización (CV) and is a main source of municipal revenue, which has been implemented since 1921 (Borrero Ochoa, 2011[78]). Local authorities in Israel already implement betterment levies (also called capital gain taxes) in order to fund public facilities (OECD, 2017[38]). As set by the Law in Israel, a levy of 50% on the value the property has gained is applied, if this betterment is a result of actions from local authorities (OECD, 2017[38]). However, as part of urban renewal programmes such as the NMP3826, and public housing projects, a betterment levy exemption is applied, on a full or partial basis, in order to incentivize higher density (additional floors to a building) or demolish and rebuild (OECD, 2017[38]). While this is an interesting incentive for property owners and developers, such exemptions are a missed opportunity for municipalities to raise revenues that can serve to make further investments. Also, as already mentioned, government investment in infrastructure as part of urban renewal programmes comes from the public budget. Betterment levies allow to balance out the fact that owners in the area have a direct gain from it, recuperating a portion of the value created for the public budget. Israel could rescind this betterment levy exemption or adjust it, so that more funds can be collected.

In addition, putting in place policies that foster the creation and maintenance of green infrastructure27 - e.g., trees, parks, and lawns – will be key in order to reduce urban heat island effects as urban areas densify. Green infrastructure lower temperatures in the surrounding microclimate, thereby reducing energy demand for cooling in surrounding buildings; less energy means less emissions. Cohen, Potchter and Matzarakis (2012[79]) show that dense canopy tree cover in an urban park in Tel Aviv reduced temperatures by up to 3.8°C in the summer. A 3.8°C decrease in the summer temperature is estimated to reduce energy consumption by 20% from air conditioning in Israel28 in residential and commercial buildings (Herzog, Shalabna and Maor, 2017[80]). Reductions in energy consumption, by consequence, reduce emissions, given the dominance of natural gas in Israel’s electricity (Chapter 2). In addition, one acre of new forest can sequester about 2.5 tons of carbon annually, not to mention that it improves of air quality, by filtering pollutants, thereby reducing respiratory illnesses and health expenditure. For example, in the District of Victoria, London estimated that 1,225 trees - covering 8.8% of surface area - remove 1.2 tonnes of pollutants (e.g. PM10, PM2.5, Ozone) annually, and saved GBP 85,149 in health related expenditures29, and stored nearly 850 tonnes of CO2, corresponding to a value of GBP 44,89530 (Rogers, Jaluzot and Neilan, 2012[81]). In addition, it has been estimated that urban trees in Barcelona - for a population of more than 210,000 trees - could remove up to 305 tonnes of air pollutants in a year, providing a value to the society estimated at EUR 1.12 million annually (Chaparro and Terradas, 2009[82]).

The protection of natural assets and the integration of green space in urban settings is already part of the agenda for some cities in Israel, for example, Tel Aviv and Jerusalem. In 2016, Tel-Aviv, approved a master plan for the protection of natural sites; in addition to the TA/5000 Zoning Plan, which set rules on how the city will develop until 2025, in terms of building density, including residential, mixed-land use, public open space and wider environmental guidelines (Tel Aviv-Yafo Municipality Environment and Sustainability Authority, 2018[53]). Likewise, the municipality of Jerusalem developed a Master Plan based on sustainable urban development with a focus on preserving ecological assets, green open spaces and metropolitan parks. However, the initiatives and master plans set out in cities such as Jerusalem and Tel Aviv are insufficient, as their outlined recommendations are not compulsory.

Green Space Factor (GSF) is a regulation for developers that requires green infrastructure in new housing developments. A wide range of cities use this, including Berlin, Malmö, Seattle, Southampton, and North West England31 (Vartholomaios, 2013[83]). The Green Space Factor is an indicator that usually goes from 0 to 1, which is a weighted average of different green surface types (using different factors assigned) and the area of each of these green surfaces (Kruuse, 2011[84]). For example, the minimum legally binding GSF is set to 0.6 in Malmö and Berlin, whereas in Seattle, the GSF has differentiated values (e.g. for multi-family mid-rise and high-rise buildings a score of 0.5 is required; for multifamily low-rise buildings 0.6). Some cities, such as Malmö, complement it by a list of Green Points (from which developers have to choose a certain number) that display unquantifiable green space qualities, e.g. “all buildings have green roofs” (Kruuse, 2011[84]). Developing tools to show these broader well-being benefits could be useful to help municipalities garner support for green space factors (see Box 3.3).

Betterment levies (discussed above) can also be used to provide green infrastructure. In certain areas of London, Putney Commons and Wimbledon, parks are maintained thanks to a betterment levy paid by residents living in proximity, additionally to existing council tax (Drayson, 2014[85]). In addition, the mechanism has been applied in Melbourne, via the Melbourne Metropolitan Parks Charge, which is levied on a one-off basis, and calculated by the local council to capture the value some of the city’s parks provide to residents and businesses (Trinomics and IUCN, 2019[86]). The charge is used to maintain and manage large urban parks, gardens and trails, thereby contributing to greening neighbourhoods and ensuring their liveability for current and future residents.

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Box 3.4. Incorporating the value of green infrastructure into decision-making

Developing tools that allow local authorities or developers in Israel to showcase the environmental and socioeconomic benefits of green infrastructure can help attract more public or private funding by showing positive outcomes that can reduce payback period of projects, thereby making their business case more appealing; or reduce public health expenditures.

The green infrastructure valuation toolkit (GIVAT) is a tool developed by a consortium of organisations across the UK, with the support of the Department for Environment, Food and Rural Affairs (DEFRA). As a response to economic, social and environmental challenges faced by the UK, it aims at evaluating the economic value of green infrastructure (The Mersey Forest et al., 2018[87]). The GIVAT showcases the benefits of green infrastructure in economic terms and wider returns for the environment and communities. The benefits are estimated in terms of climate change (mitigation and adaptation), health, land and property values (The Mersey Forest et al., 2018[87]). The current used prototype include modules estimating climate mitigation and air quality benefits, and uses parameters such as energy consumption, domestic price of electricity, amount of green space (surface). It has been already used for assessing the benefits of green space in some cities across the UK (The Mersey Forest et al., 2018[87]).

Source: (The Mersey Forest et al., 2018[87]).

3.4.2. Decreasing the strain on municipalities budgets and developing local technical capacity

Constrained budgets and private land-ownership exacerbate urban sprawl and poorly integrated infrastructure

Constrained local budgets – along with lingering debt – restricts municipalities’ ability to develop housing in the city centre. The largest proportion of municipalities’ budgets comes from property taxes – typically, about 46% (S&P Global Rating, 2019[22]). The Arnona rates – taxes on the use of buildings - change between municipalities, but the national government restricts the upper bound of taxes on the use of residential properties, leading to a state where municipalities are chronically in debt. The absolute level of debt is fairly constant, but as a percentage of operating revenues, it is equal or less than 30% (S&P Global Rating, 2019[22]).

This precarious but perpetual condition means that municipalities often cannot afford the upfront costs of infrastructure to develop privately owned land (which is one of municipalities’ responsibilities), and instead, opt to develop state-owned land in the periphery, for which it has support from the national government. This lead to low-density development and sprawl, thereby increasing GHG emissions (OECD, 2018[4]). For example, in Netanya, the municipality needs upfront financing to develop the infrastructure for private land, but lacks the financial capacity to do so (OECD, 2017[6]). In contrast, it is possible for municipalities to develop state-owned land in collaboration with the national government as part of large-scale residential projects where financing for infrastructure and public facilities is provided by the Israel Land Authority (OECD, 2017[6]). As part of these agreements, the state usually provides pre-funding and assistance in planning, while the municipality is in charge of construction and providing building permits in a timely manner. In Netanya, these incentives have resulted in an urban core rampant with undeveloped private land (OECD, 2017[6]).

Exploring decentralisation and building on good practice

At the moment, spending in Israel is highly centralised, and local tax revenues are very low (in comparison with other OECD countries) (OECD, 2019[88]); a configuration that has exacerbated among other problems the housing shortage, as described above. Empowering local governments – whether at the municipal, district or regional level – with greater autonomy may help Israel address these chronic budgetary constraints. Locally elected authorities are generally better positioned to understand local needs and to respond to local demands (OECD/ITF, 2018[72]). Decentralisation has occurred throughout OECD countries, bringing a reconfiguration of power and responsibilities between levels of government. This has led to a different role for national governments, one that is less prominent in directly delivering local services and infrastructure, but which instead (at least ideally) needs to ensure coordination and alignment of local decisions with national policy objectives, as well as ensuring balanced development across territories. The experience with decentralisation in other OECD countries shows an improvement in the quality and efficiency of public services as a result. Revenue decentralisation, in particular, is associated with smaller regional economic disparities (OECD, 2019[88]). The OECD (2019[88]) already created a handbook for policymakers on how to decentralise, crucial steps include, “(1) clarifying the responsibilities assigned to different levels of government, (2) ensuring that these responsibilities are sufficiently funded, (3) strengthen subnational fiscal autonomy to enhance accountability, (4) support subnational capacity building,” amongst others.

Israel could also build on international experience if engaging in a decentralisation process by ensuring the new governance framework allows (and even requires) for the creation of metropolitan level bodies. This type of bodies can avoid a common downside of decentralisation, which is generating a high level of fragmentation in responsibilities, for instance those for transport or urban development, across an array of actors. These bodies can strike a good balance, by on the one hand, allowing local authorities to perform a relevant role in the decision-making process and, on the other, making it possible to guarantee coherence and cohesion across a territory-the metropolitan area or region- which in many cases is also composed of urban and rural territories (which also generates important challenges). The creation of these bodies is in particular important where cities have evolved into economic units that do not necessarily coincide with administrative boundaries (OECD/ITF, 2018[72]).

The creation of Metropolitan Transport Authorities has, for instance, proven successful in delivering important improvements in transport policy and its integration with housing and land-use. The following chapter offers guidance on how to establish Metropolitan Transport Authorities. Transport has indeed been a common responsibility assigned to these types of bodies. However, in several cases metropolitan bodies have also been assigned other responsibilities. Among these are environment and urban development, like in the case of the Àrea Metropolitana de Barcelona (AMB) in Spain (OECD/ITF, 2018[72]), or economic development, as in the case of the Metropole Region Rotterdam The Hague (MRDH) in the Netherlands (OECD, 2016[73]). In both these cases, these responsibilities are additional to transport responsibilities.

Leveraging innovative financial instruments to further expand local financial capacity

A number of financial instruments – in addition to decentralisation - can be used to finance eco-districts and or simply green infrastructure, for example, via development charges. This is a one-time compulsory levy paid by developers as a condition to receiving building permit (Merk et al., 2012[89]). It aims at financing infrastructure and services costs incurred by new developments. Such a levy is particularly relevant for residential developments in new neighbourhoods to finance public facilities such as green space, sidewalks, or even transport. Israel’s central government allows municipalities to exert development charges, but not all localities apply or promote them in an optimal way, due to capacity and knowledge gaps, thereby causing difficulties in raising funds. One solution the government proposed was to enact a national law that would standardise the calculation of development charges in all localities, depending on local density and topography (OECD, 2017[38]). Development charges are implemented and systematically used in a wide range of OECD countries, such as in the UK, which has put in place the Community Infrastructure Levy (CIL), that allow local authorities to charge developers for new developments in their areas. The CIL is applicable to any new development that creates new dwellings or additional floor space of a minimum of 100 square meters to help fund local infrastructure that provide services to residents (UK Government, 2014[90]). In London, the Mayoral CIL (MCIL) was put in place in 2012 to help fund the Crossrail, the new high capacity rail that will cross London32. The MCIL charge rate is calculated depending on the distance from the Crossrail: the closer the development to the stations, the higher the charge is, thereby charging more the more developments will benefit from the project (OECD/ITF, 2018[72]). Israel could also consider such variables integrating the distance to major transport stations with frequent transport services into the charges’ formula. Standardising development charges could be a priority for Israel in the next five years.

Municipalities in Israel could also strengthen inter-ministerial co-operation to attract public funds through pool funding (Trinomics and IUCN, 2019[86]). For example, Israeli municipalities could collaborate with public health departments to create or preserve green spaces in a given area. Green infrastructure positively influences public health – e.g., decreasing pollution, improving quality of life - thereby decreasing health related expenditures. This additional health-related funding can then be used to protect or add green spaces. For example, the city of Liverpool (in the UK) uses public health budget to improve green spaces in deprived residential areas, through the Liverpool Primary Care trust, which funds the Natural Choice for Health and well-being programme (Drayson, 2014[85]). In total, 38 projects in poor neighbourhoods were granted between GBP 1,000 and GBP 38,000 (for a total of GBP 380,000 granted) to create green space across neighbourhoods. The programme substantially enhanced the residents living conditions, as they self-reported an increase of wellbeing by 18% (Drayson, 2014[85]).

Israeli municipalities can also harness the potential of local businesses to fund green and accessible neighbourhoods. Business Improvement Districts (BID) are public-private organisations based on an agreement between local government and businesses who accept to pay an additional levy to finance projects in the district - e.g. green spaces, pedestrian facilities, cycling paths, and so on. In San Francisco, the BID model extended to residential areas to create the “Green Business District” (GBD) in the Dogpatch and Potrero Hill neighbourhoods. Residents and businesses agreed (by vote) to pay an additional compulsory levy aiming at supporting the maintenance or improvement of green space in the residential neighbourhood, augmenting thereby the actions of the local authority. In order to be effective, BIDs (or GBDs) need to be composed by a critical number of businesses (and/or residents) that are willing to pay for similar services (Merk et al., 2012[89]). BID is a tool that can be used in Israel, especially in newly built neighbourhoods or regenerated urban areas that foster mixed land uses, local economic activity and high business concentration. Awareness raising toward environmental concerns and a clear demonstration of wider wellbeing benefits can help obtaining commitment from businesses and landowners.

Similar to the cash-back schemes at the dwelling level, Israel’s municipalities can subsidise private landowners to create or maintain green space on their properties, by partly covering their cost, but subsidies and tax rebates are more feasible in municipalities that do not encounter budgetary constraints. In Rotterdam, Netherlands, in order to promote the installation of green roofs, the City provide a subsidy of EUR 30 per square meters for roofs of at least 10 square meters. In 2018, around 360,000 square meters had been installed across the city (City of Rotterdam, 2018[91]). In Hamburg, Germany, in order to reduce urban heat island effects and buildings energy demands, the Ministry for Environment and Energy, through its Green Roof Strategy33, decided to support building owners by providing subsidies covering up to 60% of green roofs costs, The Strategy aims at planting a total of 100 hectares of urban green roofs in 10-year time (Climate ADAPT, 2016[92]).

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Table 3.5. Summary financing instruments at the neighbourhood and city-level

Type of land


Who bears the costs ?

Who repays ?

Wellbeing implications

Feasibility in Israel


Pool funding from different ministries or departments in local governments

Relevant ministries

No repayment


Cross-sectoral benefits – Public health, mental wellbeing, physical health

Less public health expenditures due to improved public health

Climate change mitigation


Other challenges in other sectors might be less prioritized

Availability of funds in targeted ministries

Clear quantification of benefits across sectors

Monitoring tools that guide funding decisions

Awareness raising


Development charges




More public funds available

Enhanced public health

Climate change mitigation


Can be perceived as an imposed tax by developers

Regulatory changes

Carefully designed in order to avoid “double” similar taxation

Public or private

Betterment levies




More public funds available

Wealth sharing

Benefits returned to society


Some population might be unable to afford the levy

Accurate calculation tools and resources

Targeted treatment for people who cannot pay for the levy


Split-rate property tax

Landowners, property owners



More public funds available

Incentivize land development

Increase density and curb urban sprawl


Some population might be unable to afford the tax

Administrative costs to isolate the value of land from the value of the dwelling

Accurate tools and resources to calculate the tax

Targeted treatment for people who cannot pay for the tax

Public or private

Business Improvement Districts

Private sector: businesses or residents

No repay


The municipality “delegates” some responsibility, relaxing thereby budget constraints

The wider community will benefit from the green infrastructure


Small business or poor households might not be able to afford the additional tax

“Law of large numbers”

Level of awareness and concern toward environmental issues


Subsidies and tax rebates




Can promote investments

Wider benefits for the community (e.g. cooling and filtering of ambient air nearby)


The price of subsidized solutions can be hold at a price artificially high

Additional administrative costs

Availability of funds

Transparency and verification with regard to solutions chosen by the beneficiary


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← 1.

← 2.

← 3. Israel is divided into six districts: Haifa District, Jerusalem District, Tel Aviv District, Central District, Northern District, and Southern District.

← 4.

← 5.

← 6. What the specifications of the house were

← 7.

← 8.

← 9.

← 10.

← 11.

← 12. External benefits includes avoided emissions and the value of peak hour savings.

← 13.

← 14. 30% is the typical threshold for affordable housing (Center for Neighborhood Technology, 2019[12])

← 15.

← 16.

← 17.

← 18.

← 19. An urban core consists of a high-density cluster of contiguous grid cells of 1 km2 with a density of at least 1,500 inhabitants per km2 and where gaps in the high-density cluster are filled using the majority rule iteratively. The majority rule means that if at least five out of the eight cells surrounding a cell belong to the same high-density cluster the cell will be added. This is repeated until no more cells are added.

← 20.

← 21. In addition to the Israel government’s National Master Plan 35, and the regional District Master Plans, each municipality is supposed to develop their own plans, e.g. the Local Comprehensive Plan or Local Master Plan.

← 22. Main legislative body of the Israeli government

← 23. According to Tel Aviv’s Sustainable Planning and Energy department, these seven neighbourhoods meet a wide range of sustainability goals and integrated infrastructure, whereas they are yet not net-zero.

← 24. Information from Tel Aviv Municipality (email exchanges)

← 25. 3,000 in the entire country, as of 2016 (Haaretz, 2016[61])

← 26. According to the Israel Planning Administration, the NMP is to be replaced by a new mechanism that is being developed (Israel Planning Administration, 2020[8])

← 27. Green infrastructure, on the other hand, can be defined as an ensemble of green areas embedded in the built environment.

← 28. Estimations are based on results from (Herzog, Shalabna and Maor, 2017[80]), calculating Israel’s electricity consumption for air conditioning as a function of temperature.

← 29. Estimated social costs in terms of impacts on health, as well as on buildings envelops, and crops (Rogers, Jaluzot and Neilan, 2012[81])

← 30. Carbon sequestration benefits are monetized by multiplying the tonnes of carbon stored by the non-traded price of carbon (Rogers, Jaluzot and Neilan, 2012[81])

← 31. As of 2011, the North West England is no more compulsory, it has been set as “guidance”

← 32. Still under construction

← 33. Put in place in 2016

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