The recent ban on short-term letting in Berlin falls on owners who use peer-to-peer services such as Airbnb and its competitors to advertise their holiday lets to tourists. The German capital is experiencing a housing shortage. The prohibition is intended to increase the supply of moderate priced apartments for local residents, a common complaint in major tourist destinations around the world. Elsewhere, there are those in the hotel industry who complain about the recent competitive upsurge from Local Lodging.
Would a ban on short term “peer-to-peer” letting address these shortcomings in Portugal?
Before analysing the underlying issues, it is best to understand precisely where the line has been drawn in many cities around the world that have instituted similar partial or total bans on Local Lodging.
Letting when the owner is away, renting out a spare bedroom or offering the couch in the living room – these options seem to be generally acceptable. The ban falls on whole apartments and houses used primarily or exclusively for short-term letting to holidaymakers.
However, there seems to be no further distinction between genuine “peer-to-peer” offerings – individual owners listing through internet services for let to visiting individuals – and comprehensive commercial networks, where a single operator controls multiple units, creating a virtual “horizontal hotel” in a building, street or neighbourhood, bypassing conventional standards.
Differentiating between grassroots sharing and opportunistic commercial ventures is key to avoiding overreaction to this holiday industry phenomenon.
At the other end of the spectrum, it is also disproportionate to charge full commercial rates for utilities and municipal services to occasional “peer-to-peer” offerings just because this Local Lodging is formally classified as a taxable business activity by tax authorities.
On the positive side, Local Lodging visitors have poured billions of euros into the Portuguese economy in recent years. This spending represents jobs, tax revenues and capital investment that would otherwise go elsewhere. Banning Local Lodging wouldn’t help. To the contrary, it would clearly be a case of “biting the hand that feeds you”.
Instituting a “tourist tax”, on the other hand, can make a real difference, bring in millions of euros in revenue to cash-strapped municipalities. There is nothing unjust when visitors contribute their fair share towards municipal infrastructures that help make possible their visit in the first place. Nevertheless, any such measures must be well designed and implemented carefully.
Supply and demand
The “peer-to-peer” sharing economy is not driven by legislation. Simply banning Local Lodging won’t change the underlying forces of supply and demand. While a ban might bring about an initial reduction in offerings, as has been the case in Berlin, the principal consequence would be to drive the activity underground. This would be a serious step backwards with little influence on market forces.
Current Local Lodging laws have substantially boosted compliance in recent years, enhancing safety for visitors and tax declared on Local Lodging income. Compliance creates a level playing field for all. In addition, historic neighbourhoods, threatened by desertification and decay just a few years ago, are springing back to life, albeit not the same one as before. This urban renewal will have a long-term beneficial impact whatever the eventual mix of long or short-term letting.
Hotels vs Local Lodging
Would banning Local Lodging be of any real benefit to the hotel industry? It is unlikely. First, hotels throughout Portugal are already operating at record occupancy and are at full capacity when demand is highest. Banning short-term letting would only leave tourists with nowhere to stay.
Equally important, Local Lodging visitors are after a different experience that they don’t find in hotels. Their top priority is to live the city like residents. They buy and consume goods and services like locals but in a much more concentrated time and in larger quantities since they also shop to take back. They take special interest in the local culture and, when happy with their stay, become volunteer ambassadors once they leave.
Next: Part 2 – Long Term vs Short-term Letting