Incentives for Urban Renewal in Israel: What Happens When the Building Permit Is Delayed?

The Government Urban Renewal Authority’s letter of September 23, 2026, to the heads of local authorities sends a clear message: when building permits are issued can have significant financial implications for local authorities.

Under RFP 1/2026, the letter explains, building permits issued in 2026 will receive budgetary priority. Funding for permits issued in 2027 will depend on whether any funds remain after allocations for the 2026 permits.

A Welcome Incentive to Address Infrastructure Barriers

Incentives for local authorities to issue building permits for urban renewal projects are an important and welcome measure. But urban renewal involves more than renewing residential buildings: it also requires infrastructure upgrades, new public facilities, and services that meet the needs of a growing population. The gap between the pace at which housing units are added and local authorities’ ability to fund and develop the necessary infrastructure and public services is a significant barrier to project implementation.

Grants for infrastructure and public facilities help address this barrier, at least in part. They allow local authorities to approach urban renewal from a city-wide perspective, rather than focusing solely on individual buildings or complexes.

This makes certainty about the receipt and amount of grant funding particularly important. When funding depends on when a permit is issued and what remains after other permits have been funded, local authorities find it harder to plan and carry out public investment. A building permit issued at the end of 2026 may have very different implications for a local authority’s budget from one issued at the beginning of 2027, even where the projects are similar and the public needs identical.

Permit Timing Is Not Solely Within the Local Authority’s Control

The letter calls on local authorities to map the relevant permit applications, complete their processing, and streamline internal permitting procedures. These are appropriate steps, and most local authorities, supported by their urban renewal administration, are already working to remove delays and barriers within their responsibility.

However, a local authority’s power to issue building permits is not the same as its ability to ensure that all conditions for issuance are met. Progress on the application also depends to a significant extent on the developer and professionals acting on its behalf, including submitting all required documents, revising the application, obtaining approvals, and satisfying the applicable conditions. At times, the pace of progress is also affected by the developer’s financing considerations, economic feasibility, readiness to begin construction, and business scheduling.

This raises a key question: what happens if a local authority has efficiently completed all steps within its responsibility, but a delay on the developer’s part prevents the permit from being issued in 2026?

The letter does not set out a mechanism for distinguishing between delays within a local authority’s control and those beyond it. Such a distinction may exist in the RFP documents or the relevant agreements, but the issue still needs clarification. Without an adequate solution, local authorities may bear the budgetary consequences of decisions over which they do not have full control, potentially affecting the infrastructure and services intended for residents.

Acceleration Cannot Rely on a Deadline Alone

There is no dispute about the need to accelerate urban renewal, particularly given the need for protective measures and structural reinforcement. Budgetary prioritization is likewise intended to encourage projects to move forward rather than leave plans on paper. However, setting a deadline close to the end of the fiscal year, beyond which funding may be reduced or depend on remaining budget balances, creates difficulties when not all aspects of the process are within local authorities’ control.

The incentive would be more effective and fairer if, alongside the requirement to accelerate the process, provision were also made for cases in which the local authority has fulfilled its responsibilities but completion of the process depends on the developer or external parties. Consideration should be given, for example, to transitional arrangements for projects at an advanced stage of the permitting process, the option of reserving funding subject to defined milestones, or taking documented reasons for delays into account. Any such measures must comply with legal requirements and must not create pressure to issue a permit before the legal conditions for its issuance have been met.

An Uncertain Market Calls for a Policy That Helps Projects Move Forward

The real estate market, including the urban renewal sector, is operating amid security and economic uncertainty that affects financing, viability, and the pace of implementation. The letter itself acknowledges these challenges.

Against this backdrop, making funding in 2027 contingent on the remaining budget may increase uncertainty rather than reduce it. For local authorities and the urban renewal administrations supporting them, the question is not simply whether a project will receive its permit on time. It is how to plan the infrastructure and public services the project requires when funding sources are uncertain.

In our experience representing local authorities and advising urban renewal administrations, accelerating the permitting process and creating budgetary certainty are not competing goals. On the contrary, certainty is an important condition for advancing projects, planning infrastructure, and fostering cooperation between local authorities, urban renewal administrations, and developers.

The incentives are a step in the right direction, but maximizing their impact requires a policy that combines incentives for issuing permits with budgetary certainty and consideration of delays beyond local authorities’ control. This would encourage not only the rapid issuance of building permits, but also urban renewal that can be implemented and sustained over time.

Recommendations

In practical terms, local authorities and urban renewal administrations should begin mapping projects at advanced stages of the permitting process, identify the conditions that still need to be met, document delays caused by third parties, and review the provisions of the RFP and the relevant agreements. Where there is a risk of losing funding, they should explore the available options with the competent authorities and obtain appropriate legal advice.

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Adv. Ruth Gerby is a partner and head of the firm’s municipalities practice.

Barnea Jaffa Lande’s municipalities practice advises local authorities and urban renewal administrations on a wide range of legal issues, including advancing urban renewal projects, planning and building matters, engagements with developers and professional entities, and addressing legal and regulatory barriers. The team helps assess funding frameworks and eligibility conditions, analyze their implications for project implementation, and develop solutions that enable local authorities to achieve their goals while safeguarding the public interest.