A LISBON STORY: Short-term rental platforms and the housing market

According to The Guardian, in June 2019, the mayors of ten European cities demanded help from the European Union to tackle the negative impact of Airbnb and other holiday rental websites on their cities. These platforms, they argued, were pricing the locals out of the city housing.

The mayors were reacting to a decision by the Advocate General of the European Court of Justice, who issued a non-binding opinion stating that Airbnb should be considered a digital information provider rather than a traditional real estate agent. They understood that this decision might hamper them from regulating the presence of Airbnb in their cities.

The mayor of Lisbon was not among the signatories of this letter, possibly because, by June 2019, Lisbon was already into its seventh month of imposing restrictions on short-term holiday rentals. Indeed, in November 2018, the municipality of Lisbon had banned new registries of properties for the short-term rental market in some historical neighbourhoods in the city centre.

The capital of Portugal is a particularly interesting case study because it witnessed a very rapid real estate price increase in the recent past, and it also welcomed a touristic boom. More recently, the Lisbon mayor wrote an open letter in the The Independent reassessing post-pandemic priorities: ‘Essential workers and their families have increasingly been forced out as Airbnb-style holiday rentals have taken over a third of Lisbon’s city centre properties, pushing up rental prices, hollowing out communities and threatening its unique character.’

But the mayor had not always been in favour of curbing the growth of these platforms. In 2016, at a time when Airbnb’s listings in the Lisbon metropolitan area had nearly tripled since January 2014, he said to Bloomberg: ‘This is the first time that tourism is allowing many people to participate in the development process of the city. We shouldn’t be scared of this new dynamic, we shouldn’t be afraid of growth. On the contrary, we need to prepare the city to take in even more tourists.’

New research (Gonçalves, Peralta, and Pereira dos Santos, 2020) takes advantage of the ban implemented by the municipality of Lisbon, in November 2018, in some neighbourhoods, which provides an ideal setup to estimate the causal impact of short-term rental regulations on the housing market.

The authors rely on the fact that the ban was extended one year later to some adjacent areas to quantify the impact of this ban on registries, Airbnb prices, and the real estate market in the city of Lisbon. The authors use two administrative data sets on short-term rental registries and real estate transactions, and web scraped data on Airbnb rental listings.

They document a spike in new registries in originally treated areas of 30.9%, between the announcement and the implementation of the ban, driven by domestic incumbent owners, as a result the law’s approval. Airbnb quantities and prices do not seem to react to the ban in the short term.

Regarding the real estate market, they find evidence of a decrease in demand for houses in the treated areas, especially, two-bedroom apartments, leading to a contraction of 20% in transactions vis-à-vis the comparison areas. Prices decreased by 8%, showing that the option to rent the dwelling in the short-term rental market is an important demand determinant, at least in touristic areas.

João Pereira dos Santos

PhD Student at Nova School of Business and Economics