In recent days I was doing some serious hotel booking in Israel, and I must say I am appalled by the state of the hotel industry there. I am quite intimately familiar with the cost of living and real estate prices in that country, and in comparison the hotel prices are not just high, their are through the roof.

First of all, if you planned to spend less than $100 a night, forget about it, in any part of the country. You might get some apartments for $70 or so, but their owners are usually very reluctant to rent for only a couple of days. And I am talking November, which is considered “off season”.

Second of all, the hotels are concentrated in a few key areas, mostly around beaches. There are absolutely no (detectable) hotels in small towns like Rishon Le-Zion, Yokneam, or Givatayim. Nearest hotel to the Ben Gurion airport that charges below $150 is located in downtown Tel-Aviv and does not have parking.

The concept of cheap motels in suburbia does not exist. To give you some comparison: in New Jersey if all you need is a place to sleep and you don’t insist on being within walking from New York Times Square, you can get a room which is not a total dump at $60-70 a night, or even lower if you catch a good deal. A basic 1 bedroom apartment in a safe neighborhood in the Greater New York area would cost $1200-$1500, which makes it $40-50 a night on average. So, the price of low end (but still decent) hotels is only slightly above the price of a good (not luxury) apartment. Of course, a hotel room is much smaller than an apartment of equivalent value, but this is not the point.

In Israel a decent low-end hotel which is not a total dump and has a parking would cost at least $150 in urban areas and around $120 in the middle of nowhere. It does not matter whether you call them, e-mail them, use Hebrew language sites, or English ones. The price would be the same through all sources.

At the same time, a decent apartment costs no more than $1000 a month, and much less in the middle of nowhere, unless we are talking about beach-front property rented to tourists. But even then anything that is not a huge villa would go below $2000 a month. This makes $33-$66 a day, which is 3-5 times lower than a price of a basic livable hotel. This disparity is even higher in suburban and rural areas.

Something must be seriously wrong there. I think, two factors play key role here. The American hotel market, especially in suburban/rural areas, is designed for Americans – tourists and businessmen. We don’t have crowds of very rich Japanese, German, or Martian visitors coming to Fairfield, NJ. Israeli market is clearly oriented towards foreign tourists who allegedly have more money than the locals, and prefer to hang out in Jerusalem, or on a beach in a big city, and pretty much nowhere else. This is why there are no cheap hotels in more remote areas – nobody would use them. This unfortunately makes Israel look like a third world country, not very far away from the Bahamas or Dominican Republic.

The second factor is limited competition. Given the cost of living and real estate, hotel prices could be much lower. I am not sure what is the reason for low competition. On may blame the level of corruption and taxes. It may be difficult to open an hotel without “connections”, and if you do, you risk it being immediately shut down for a random violation of some 200 year old Turkish law you never heard of.

The thing is, when the British came they continued to use the laws of the Ottoman Empire with some modifications, and when Israel was established, it inherited the Mandate laws, albeit most of them were later superseded by new legislation.

Whatever the reason, Israel easily outprices places like Moscow, St. Petersburg and most American cities, and hotel prices there approach those in Manhattan.