The short-term rental market and housing affordability

February 7, 2022

While beneficial for the economic recovery of Portugal, the rising trend as a tourist destination can also generate negative impacts in the population. One important concern is the rising costs of housing, particularly in the city centers. The authors collected data for the period 2011-2014 on Airbnb presence, house prices and rents to quantify the impact of Airbnb’s short-term rentals on housing affordability in Portugal.

Transaction Prices, in €/m2, in civil parishes within Lisbon and Porto.
Caption: Transaction Prices, in €/m2, in civil parishes within Lisbon and Porto.
In 2014 there was a regulatory reform (Decree-Law no. 128/2014) that greatly simplified the process of entering into the short-term sublet business. The analysis uses this reform to infer the differential effect of the growth of Airbnb on the parishes mostly impacted with tourism. The findings show that on average a 1 percentage point increase in a municipality Airbnb share results in a 3.7% increase in house prices. When zooming our analysis to the main cities of Lisbon and Porto, we find that a 1 percentage point increase in a civil parish Airbnb share leads to a 3.2% price increase.

House prices in a high-tourism parish (mostly localized in the city center) increased by 24.3% in 2015 and 32.3% compared to a low-tourism parish from the 2nd quarter of 2014 (the pre-Airbnb expansion period) to the 1st quarter of 2016. (See Figure.)

The significant discrepancy in house price inflation across high- and low-tourism areas in an 18-month period (as caused by the Airbnb expansion) is likely to create a process of gentrification affect people of low incomes disproportionately more than people of higher incomes. It pushes people to live further away from the city center with impact in the time spent commuting and in quality of life. The benefits of increased urban tourism in the form of short-term rentals should be weighed with the costs associated with increased house prices.

Click here to go to the paper by Sofia F. Franco and Carlos Daniel Santos.


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