Disproportionate STR regulations threaten to hurt ordinary Europeans

As the cost of living increases, people rely on new income streams to pay their bills — such as renting out a spare room.

In the Paris region, the number of primary homes on Airbnb increased by more than 80 percent in May 2024 compared to the same time the previous year as local families hoped to benefit from pent-up travel demand before the Olympic Games.

When things are so expensive, renting out a room can be a lifeline.

“I know a former IT professional who wanted to become a teacher but needed to rent a room out to guests occasionally to pay the mortgage,” says Maarten Bruinsma, chairman of Amsterdam Gastvrij, a group representing holiday rental owners. “When things are so expensive, renting out a room can be a lifeline.”

But the rise in short-term rentals has also caused consternation in tourist hotspots where buy-to-let properties are deemed to have contributed to inflated house prices. In Athens, for example, the city council is involved in a legal dispute with companies buying entire apartment blocks to let on platforms such as Airbnb or Booking.com.

Although “illegal hotels” and people who own multiple rental properties do reduce the housing stock, they are not the average host on Airbnb. Focusing on these isolated cases risks making short-term rentals a scapegoat for more substantial factors driving house price inflation, such as rising building costs and mortgage rates. Regulating on this basis also risks strangling critical income streams for people facing tough economic conditions.         

In Amsterdam, short-term rentals have been limited to 30 nights per year while cities such as Barcelona plan to stop renewing short-term rental licenses by 2028. Very strict rules that effectively banned short-term rentals in New York were shown to hit the city’s poorest boroughs the hardest, reducing visitor spending in these regions by an estimated $1.6 billion per year and cutting worker earnings generated by Airbnb guest spending by $573 million.

Although “illegal hotels” and people who own multiple rental properties do reduce the housing stock, they are not the average host on Airbnb.

Meanwhile, hotel prices in Manhattan have jumped more than 50 percent year-on-year to reach an average daily rate of $524 — far more than most people can afford. Evidence suggests that short-term rentals help reduce tourism accommodation prices in key European destinations by providing affordable alternatives.

In Europe, where some regulation on short-term rentals is implemented at a national level, governments also risk exacerbating rural-urban divides. “In rural areas where it isn’t viable to keep a hotel running all year round, short-term rentals are usually the only way to derive tourist income outside peak season,” says Klaus Ehrlich, general secretary of RuralTour, the European Federation of Rural Tourism. “What’s more is that these regions usually have a housing surplus because there isn’t the residential demand that there is in cities.”

Failing to address the problem

Cities such as Barcelona that are regulating the entire short-term rental market in an attempt to relieve pressure on the housing market are finding that the rules have limited effect.

“What you have to think about is how many of those short-term rentals are going to return to the housing stock and the answer is very few,” says Matthew Dass, associate director at Oxford Economics, pointing out that a significant proportion of the listings on Airbnb are either holiday homes or spare rooms in longer-term rentals.

Over-regulation simplifies a complex mixture of economic factors such as urban migration, aging societies and rigid urban planning regimes that underpin the lack of housing in European cities. For some, such policies boil down to political point scoring. “The reason the regulation doesn’t target the hotels and hostels is that it would cost roughly €200,000 per hotel room to revoke their license,” says Bruinsma, noting that restricting short-term rentals is free.

Individuals who choose to continue letting out their property face hefty fines for any mistakes. Failing to report the number of nights someone is staying in advance can leave hosts in Amsterdam liable to receive a fine of up to €8,700.

Restrictive regulations can have unintended consequences.

In Amsterdam, individuals account for 95 percent of Airbnb hosts. They are hardest hit by the city’s strict short-term rental regulations to limit the number of tourists in particular areas. A recent report by Oxford Economics, which highlighted the economic and social contributions of short-term rentals throughout the EU, warns that restrictive regulations can have unintended consequences, increasing the cost of accommodations for everyday travelers and affecting local host earnings.

“What you actually see is that while short-term rentals in Amsterdam have decreased by 52 percent because of these regulations, overall guest nights have increased by 12 percent,” explains Dass. “So what we estimate is that from that policy there’s about €269 million in lost host earnings in Amsterdam.”

Proposals such as Spain’s to increase VAT on short-term rentals to 21 percent also pinch the pockets of individuals looking to rent their property. Unlike hotels, which can write off the cost of repairs or cleaning as a taxable expense, renting a room is not considered a “business activity,” further diminishing the incentive to host or rent out a spare room.

A better way to regulate

Balanced policies start with ensuring transparency across the short-term rental market. In February 2024, the European Parliament approved new data-sharing rules obliging large online platforms to share rental data with local authorities each month. This will help correct misconceptions about short-term rentals and aims to prevent over-regulation that risks harming local communities and tourism. If governments aren’t careful, they’ll squeeze those struggling to get by — while the real housing crisis goes unchecked. Smart policies will maintain the economic benefits of short-term rentals while addressing potential downsides. By leveraging data, governments can not only craft more effective policies but also demonstrate that their policies are achieving the intended effect.