How to achieve a healthy balance between the needs of residents and booming tourism?

Updated: Nov 17, 2020

Porto revoked the proposed restriction on Local Accommodation amid pandemic. How should the city go forward to ensure a healthy balance between residents and tourists?

Local Accommodation amid pandemic

On May 18, 2020, the Municipality of Porto approved the revocation of the proposed restrictions on Local Accommodation. The bill includes the revocation of the proposed new Local Accommodation Regulation, the cancellation of the new containment areas for Local Accommodation Establishments, as well as the suspension of the prohibition on new registrations on Local Accommodation Establishments in the conditioned containment areas.

Portugal is one of the European countries where the Gross Domestic Product (GDP) most depends on tourism. In 2018 the total contribution of travel and tourism to GDP in Portugal was 35.2 billion euros, which accounts for 17.2% of the national gross domestic product (204.30 billion euros in 2018). As shown in INE's (Instituto Nacional de Estatística) newly released statistics, in March, the total revenue in tourist accommodation establishments amounted to EUR 98.9 million. Revenue from accommodation stood at EUR 71.8 million, corresponding to a year-on-year change of -60.2% and -59.7%.

 Revenue from accommodation

The pandemic has led to a profound impact on social and economic situations in a short period and is constantly changing. According to Oxford Economics, the levels of international travel recorded in 2019 are not going be restored before 2023, since the prolonged effects on incomes are reflected in tourist movements. It is in consideration of all the facts that the Municipality of Porto decided to revoke regulations on Local Accommodation proposed in mid-2019, which was intended to cool down the overheated short rental market. However, there has been a lot of debates on whether deregulation is the right solution to the problem.

Those opposing this decision of the municipality argue that government interventions are very much needed to regulate the growth of these hospitality units and that they see the crisis as an opportunity to rethink the city. As a result of the booming of tourism in recent years, local citizens raise their concerns about overcrowded city centers and rising rents. With the demand side falling, they believe that the slow down of tourism helps ease the problem of "over-touristification” of the local neighborhoods, thus can lead to a new equilibrium under new normality.

On the other hand, those supporting the municipality’s decision emphasize the sudden and profound change in the tourism sector and the economy at large, which has already led to a significant decrease in the activity of local accommodation, with uncertainty in future repercussions. They believe the context of great uncertainties in which we currently live justifies the reflection on the concrete terms of the regulation of local accommodation, resulting in a possible postponement of the entry into force of the Regulation of Local Accommodation. Increased supply in short-rentals, they argue, can introduce more competition and thus restrain price growth, making long-term rentals a more attractive option to property owners.

Of course, the city of Porto needs a healthy balance between the needs of residents and booming tourism. Therefore, it is crucial to understand the perceived positive and negative externalities of short-term rentals and to learn from regulatory approaches taken by other local governments facing similar problems.

The local accommodation activity does not need deregulation but needs support.

The economic benefits of short rentals are relatively straightforward. Property owners can benefit from the excess income generated from short-term rentals, compared to traditional long term rentals. Tourists are happy with the increase in variety and affordability of travel accommodation; local shops and restaurants are also profiting from extra revenue as a result of short-rentals in their neighborhood.

Whereas the negative externalities centered around the overheated rental market and the “touristification” of local neighborhoods. Local governments should introduce their approaches to regulate and support both the tourism sector and residents’ interests.

Set regulatory policies on short-rental to balance between healthy economic growth and a steady housing market. In Berlin, owner-occupiers can rent out their primary homes without restrictions and rent out second homes for up to 90 days per year. And similarly, in San Francisco, Airbnb rentals are allowed only if hosts are full-time residents, for up to 90 days per year.

Introduce new alternatives to ensure a playing field for participants in the tourism market

This year Barcelona launched an initiative to "decongest" its historical center, encouraging visitors to explore less known areas like Poblenou, a hip former industrial zone, and Montjuic Hill, site of the 1992 Olympic Games stadium. Similarly, Holland wants to further regulate cannabis cafes and relocate the central red-light district, which attracts throngs of drunken revelers.

Provide subsidies and protect the rights of all parties to support a stable local rental market

In Australia, the local government pays each homeowner between $10,000 and $13,000 to make a property available to low-income earners. In the USA, landlords get payments to bridge the gap between market rent and lower rent paid by voucher recipients.