Tobold's Blog
Wednesday, June 19, 2024
Small apartments and tourism

I am currently on holiday, one week in a small town in the Rhine valley, renting a holiday apartment. But this apartment is different than the ones we have rented for holidays in the past. It isn’t a studio that is part of a larger house, where the owner of the house makes some extra money by renting out the excess space he has. This holiday apartment turned out to be just a regular, small apartment in a big apartment building. In fact. two thirds of the apartments in the building are inhabited by regular families, and one third is owned by a company that is renting out the apartments on a weekly basis. I’m not sure that I am okay with that.

The economic incentive is obvious. A 50 square meter apartment, one bedroom, one bathroom, one living room / kitchen in this area would rent for around 900 Euro per month. That is 30 Euro per day. As a holiday apartment, with just some basic furniture added, the owner can ask for 120 Euro per day, four times the revenue. Even if the apartment stays empty half of the time, the owner makes more money from tourists than from regular renters. Now I don’t know how the housing availability situation in this particular town is, but in general I can see how it would add to the housing crisis if the tourism market takes away smaller, more affordable apartments from the general housing market. For the tourist, there is also an incentive: An apartment at the same price as a hotel room tends to be a lot bigger, and has amenities like a kitchen. Who cares if there is no room service, and the bed isn’t made every day.

Internet platforms can enable smaller providers of services to compete with larger companies, in this case the owner of one or few apartments to compete with a hotel chain. But in some cases that creates unfair advantages, e.g. if Uber drivers compete with taxis, and a taxi is much more heavily regulated. For holiday rentals, many cities are now clamping down on the conversion of housing that has been zoned as residential into year-round commercial tourism use. Over-tourism has been increasingly identified as a problem, and the gains from tourism are often unevenly distributed, benefitting just a few landlords, while being a drain on the resources of the rest of the community.

The hope is that legislation catches up the technological opportunities of internet platforms. In the end, a community should be able to regulate holiday flats to the same degree as hotel rooms, without giving a regulatory advantage to either. Taxes on tourism income shouldn’t be the same as taxes from renting out the same apartments on a residential basis. The current housing crisis is most severe where it concerns smaller, affordable apartments, and exploitation of that housing through tourism shouldn’t be allowed to uncontrollably add to that housing crisis.

In the Netherlands the legislation already has this covered. It differs from city to city, but for an owner in such a building / complex to rent it out, he needs a permit. And even if the permit is provided, it limits the amount of days (varies mostly from 30 to 60 max per year). Platforms like Booking and AirBNB will not list the property without the permit as they risk losing their operations license in the entire country. On top of this, most owner associations actively enforce this as well, further making sure that owners don’t sidestep the permit process.
I would not call it an unfair advantage to break a heavily regulated monopoly like taxi service.
What advantages do the regulations offer? One of the goals is preserving demand.

Of course are the gains of tourism unevenly distributed because the tourist has preferences. Or how often have you bought a fridge over going to a museum while on holiday? Hell, how often do you buy a fridge versus buying food while at home?

On the housing crisis: Isn't it weird that it seems to only affect popular places and not the rural places in the middle of nowhere? Something, something, over demand for a limited supply?
Sure, maybe one could build more houses if regulations allowed. But not everyone can live in the same place. I would like (not really) to live in a mansion and drive a Ferrari but due to the ongoing mansion and Ferrari crisis, I need to bring a bag of money.
You could say that a mansion and a Ferrari aren't basic requirements and I should just look for cheaper alternatives. Well, but I need to live in Monaco. You surely can't expect me to adjust to reality when I was clearly meant to live with the Joneses!

Yes, maybe the flat could get 900 per month when let to a normal renter. But would that break even? Would someone build and invest for 900? What if the demand isn't met because 900 is simply not worth it?
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