Why is life so expensive in Israel?

By Erik Frohm

When the price of pasta sparks a protest, you know the cost of living is hitting home. In 2022, some Israelis took to social media – and the streets – to protest the rising cost of everyday essentials. This comparatively small protest wasn’t the first. For more than a decade, consumer protests have become a recurring feature in Israel, with citizens demanding action to make basic goods and housing more affordable.

Already in 2011, several social movements arose against the high cost of living. Frustrated by soaring housing prices and the high cost of staple foods, Israelis organised through social media and in person to make their voices heard, notably in the so-called tent protest and the cottage cheese boycott. The movements captured national attention, forcing companies and policymakers to respond. In 2014, the “Milky protest” reignited public frustration when a viral post compared the price of a chocolate pudding to its much cheaper counterpart in Germany.

Figure 1. Israel has one of the highest price levels in the OECD

Comparative price levels, index OECD = 100, 2023

Note: Comparative Price Levels (CPLs) are defined as the ratios of PPPs for private final consumption expenditure to USD exchange rates. They provide measures of differences in price levels among countries.
Source: OECD Annual Purchasing Power Parities and exchange rates database; and OECD calculations.

So, why is life in Israel so expensive? Several structural factors drive up prices. Geographic challenges play a major role. Israel’s distance from key trading partners and tense relations with some neighbouring countries limit trade opportunities and reduce integration in supply chains. Trade barriers, driven by difficult border procedures, complex regulatory standards and tariffs on agricultural products have also raised the price of imports. Limited competition and strict product market regulations keep prices high by slowing productivity growth and preventing the cost savings from reaching consumers. In the housing sector, administrative red tape and planning obstacles restrict supply, making homes unaffordable for many families. Meanwhile, a world-leading high-tech sector coexists with low-productivity industries where most Israelis work. This split implies large wage disparities with reduced purchasing power for workers outside high tech.

Figure 2. The administrative burden can be lowered

Product Market Regulation indicator scores, communication and simplification of administrative and regulatory burden, from 0 to 6 (most restrictive), 2023

Notes: The Product Market Regulation (PMR) indicator is a composite index that encompasses a set of indicators that measure the degree to which policies promote or inhibit competition in areas of the product market where competition is viable.
Sources: OECD 2023-2024 Product Market Regulation database.

Addressing these challenges requires bold and sustained reforms. The 2025 OECD Economic Survey of Israel outlines key policy measures to increase competition and ease the cost of living. They include removing barriers to entry, improving administrative procedures, continuing to lower trade barriers and streamlining permitting processes.  

Specifically, to strengthen competition, Israel could establish a one-stop shop for starting a business, alongside adopting a silence is consent principle for issuing permits and licenses, as well as reducing bureaucratic hurdles and fostering a more competitive business environment. Lowering entry barriers in services sectors and simplifying import licensing would also help cut costs and improve efficiency. Less state involvement in the economy, including the removal of price and quantity controls for foodstuff, can help alleviate recurring shortages and allow market prices to influence consumer behaviour.

Ongoing import reforms will make it easier and cheaper to bring goods into the country. Expanding and deepening trade agreements will further diversify import sources and open new export opportunities. Lowering tariffs on agricultural imports – such as vegetables, fruit, and dairy – will boost competition, drive innovation, and make food more affordable.

The housing market continues to face challenges. Restrictive planning regulations and slow urban development have driven up home prices, making it increasingly difficult for many Israelis to find affordable housing. Easing these constraints by accelerating urban renewal projects, and investing in better transport infrastructure – including public transit to urban centres – would expand supply and help lower costs.

Raising productivity and lowering costs on essentials like food and housing can ease the economic burden on households, create a more competitive business environment and drive economic growth.

Reference:

OECD (2025), OECD Economic Surveys: Israel 2025, OECD Publishing, Paris, https://doi.org/10.1787/d6dd02bc-en.

More information:

Israel economic snapshot: https://www.oecd.org/en/topics/sub-issues/economic-surveys/israel-economic-snapshot.html.