The economic footprint of short-term rentals on local businesses in Portugal

What happens when short-term rentals open in your neighbourhood? This question has sparked intense debate across academia and the media. It has also received attention from policymakers, mainly due to some negative implications: reducing housing supply, increasing house prices and displacing residents. However, short-term rentals can also offer more opportunities for local businesses and create new jobs.

Portugal provides the ideal setting to scrutinise the impact of such type of accommodation on its surrounding economic environment as 12% of the housing stock in Porto and 11% in Lisbon was used for short-term rentals between 2015 and 2020.

To investigate how AirBnB shape local economic activity, the study creates a measure of the “exposure” to short-term rentals, in 2016, in each civil parish for the municipalities of Lisbon and Porto, which is given by the ratio of short-term rentals to dwellings. The incidence of this exposure is shown in the figure.  

The paper estimates the effect of such exposure on the evolution of various business performance indicators between 2016-2019. The paper shows that higher exposure to short-term rentals:

(i) is positively linked with firm closure, especially for low performing firms, plausibly due to an increase in rents of commercial properties;

(ii) is positively associated with a sizable increase in sales for both resident and tourist-oriented companies, and with significant increases in number of employees, wages and liquidity for tourist-oriented firms;

(iii) is positively associated with total liabilities and external expenses of companies, likely due to the need for increased supplies to meet rising demand driven by tourists (only tourist-oriented firms saw an increase in liquidity, as measured by cash and bank deposits);

(iv) is linked to increases in probability of an entry firm being tourist-oriented, potentially leading to a clear demarcation between touristic and residential areas (entry firms also exhibit larger turnover than closing firms but are not necessarily more profitable or productive).

Click here to go to the paper by Ronize Cruz, Francisco Nobre, João Pereira dos Santos.