A new study by City Hall finds that 40% of the tourist rental business in Barcelona are illegal and drive up prices for everyone else.
Short-term rentals are a problem for a city like Barcelona with an inelastic supply of housing and rising demand for tourist accommodation that pushes up the price of rental housing for locals. Barcelona City Hall commissioned a study by Duatis Arquitectes and Urban Facts using municipal data and searching Airbnb to try and quantify the impact.
The study found that a total of 15,881 apartments in Barcelona are offered at Airbnb for rent to tourists on a short-stay basis (8% of the total rental housing stock), implying that 6,275 are illegal as only 9,606 tourist rental licences were issued before a moratorium on new licences was put in place two and a half years ago. In other words, 39.5% of tourist rental apartments in Barcelona are offered illegally and without a licence.
The study also quantifies the financial return of tourist rentals compared to ordinary rentals, based on certain assumptions. Short-stay rental incomes are between two and four times bigger than long term contracts, depending upon the district, delivering rental yields of 7% to 13% compared to the typical 3% to 4% of standard rents. So it’s not surprising many owners have turned to holiday rentals, considering how profitable it is. That said, I expect the assumptions they have made about unknown variables like occupancy rates make returns look more attractive than they are in reality.
Most tourist rentals are located in the Gothic Quarter and the Eixample, especially the right Eixample, or Eixample Dreta, with 2,294 short-term rentals, or 14% of the total.
Most tourist rental licences are also in the Eixample Dreta, but the district with the most rentals on offer (legal and illegal) at Airbnb is the Ciutat Vella Old Town (Raval, Santa Caterina, Sant Pere, la Ribera y el Gòtic), where most illegal rentals are located, at least in market percentage terms. Advertised rentals in the Old Town outnumber the number of licences in the area by a factor of four.
HOLIDAY RENTALS REDUCE THE SUPPLY FOR LOCALS
Short-stay rentals are 7.7% of the market city-wide, but 25% in the Eixample Dreta and Vila Olimpica, and more than 10% in Sagrada Familia, Poble-Sec, Diagonal Mar, Antiga Eixample Esquerra, Poblenou, Gracia, and various parts of the Old Town.
Rental prices have gone up 33% in Barcelona in the last three years, the report reminds us – the highest rise in Spain. Holiday rentals “are not the only cause of the increase in rental prices, but by restricting the supply, it is clear that it plays a part in encouraging it.”
Holiday rentals are taking homes out of the ordinary rental market, the report’s authors explain. “In neighbourhoods where returns from tourist rentals are highest, flats are being withdrawn from the conventional market and offered to tourists. This causes a reduction in the already scarce stock on offer for rent.” Supply constraints fueled by rising demand for tourist accommodation, coupled with increasing local demand for long-term rentals, “explains the big increase in rental prices that has taken place recently in Barcelona.”
Fast-rising rents drive up property prices by attracting investors, especially now that savings earn so little in the bank. Rising property prices then drive up rental demand by pricing out many buyers and forcing them to rent. So you can see how this dynamic works in favour of investors with buying power, and tourist rentals are clearly playing a part.
Will anything change? I don’t think so, not in the short term. City Hall is doing what it can with limited resources to discourage a huge problem of tourist rentals, but the risk-reward equation is just too attractive for owners, so illegal tourist rentals will continue as they are for now.
Rising demand for tourist rentals and long term contracts competing for the same fixed stock of accommodation suggests the property market in Barcelona is set to get hotter, attracting more investors. Is it a vicious circle or a virtuous circle? It depends on your perspective, but the investment case is obvious for those with financial means to take advantage of it, and frustrating for those without.
The problem is not exclusive to Barcelona. It’s happening everywhere tourists go, and even London is now being affected. But it’s particularly problematic in cities like Barcelona, Ibiza, and Venice, where tourism is huge and growing, and the housing supply is structurally limited by geographical factors, politics, and inefficient town planning.