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Balearic landlords can earn more from tenants than tourist, suggests a new study

rental property balearics
Some properties appeal to tourists more than others

Researchers at the University of the Balearics have found ordinary long-term rentals can generate more income in a year than short-term tourists rentals, and suggest that holiday rentals are not guilty of driving up the cost of housing in the region.

Holiday rentals have become a hot potato in the Balearics as rising demand for accommodation has pushed up rents, making housing increasingly unaffordable for the workforce.

Rising tourism, and the lack of land that comes with being an island, means there just isn’t enough accommodation to meet demand from tourists, residents, and second home owners in the Balearics.

The left-wing coalition currently running the regional government (Govern), pin most of the blame on owners who rent out their properties to visitors. They argue short-stay clients pay more than long-term tenants, so “speculators” (owners) switch to holiday rentals, reducing the supply of long-term rental properties, and driving up rents for locals.

This new study, by two economics professors, reported in the local paper Diario de Mallorca, suggests that short lets are not to blame for rising rental prices in the Balearics.

Assuming holiday properties only get bookings in the high season between May and October, they found the average property is booked for 58 days per year, with an average annual income from short-stay clients of €4,744 per year, which works out as €395/month. With those figures in hand, the average owners is better off with a long-term tenant.

But they also found the rental income calculation varies a lot by location, which comes as no surprise. Average short-stay income rises to €6,465 per annum in the Mallorcan capital Palma, where all holiday rentals will be banned this summer, and to €10,212 in Ibiza, where the housing market is boiling hot.

Ibiza town, where tourist and workforce demand for accommodation collide

The conclusion that owners can earn more from tenants than tourists also flips round if you assume short-stay demand out of high season, which is increasing possible in the most sought-after areas. So, depending on what and where, some owners will be better off renting to visitors, and others with long-term tenants.

Some owners don’t have much of a choice. If you own a second-home and want to use it for holidays, but also get some rental income when you are not there, then short-stay rentals are your only option. Furthermore, holiday-homes in many areas are not practical for workforce demand, and would struggle to find long-term tenants. But judging by the way the debate is going, you would think that all owners who engage in holiday rentals are guilty of pricing out locals.

Govern responds

The Govern immediately contested the report’s conclusions, with spokeswoman Pilar Costa asserting on Friday that tourist rentals do drive up the cost of housing. “Tourist rentals have a repercussion on the cost of flats,” she told the local press.

So the Govern isn’t going to let up in its campaign to clamp down on tourist rentals in the region, which it blames for the affordable housing crisis. It has also just announced a new measure in its draft housing bill that will force landlords to charge a two-month deposit from short-term rental clients staying for less than a month. So if you stay for a week you have to pay a two month deposit. Who is going to do that? This could kill off holiday rental demand if implemented effectively, though it only applies to landlords using the cover of the urban tenancy act to rent to tourists. And in my experience, none of the measures to clamp down on holiday rentals are ever implemented effectively.

Small players

Using data from AirBNB the study also reveals  that 73% of people offering property for rent on the platform have only one property advertised, whilst 13% offered two, and 14% three or more. The large majority of owners trying to earn some short-stay rental income are ordinary people, mainly local residents, small investors, and holiday-home owners, who need the income. Sometimes you get the impression it’s all being run by speculators and international capitalists.

No doubt tourist rental accommodation demand is part of the mix of factors driving up rents in the Balearics, but it’s not the only factor, even if some local activists and politicos like to blame it for everything. Other factors include planning policy, bureaucracy, and regressive fiscal policies, which local politicians could do something about. I guess holiday rentals are an easier target.

I’m all for some regulation of holiday-rentals, and I don’t want a tourist flat anywhere near my home, so I would support a ban in my area, and any other mainly residential area, if that is what local residents want. I also want to see practical measures to increase the supply of affordable housing where it is needed. I just think trying to pin all the blame on holiday rentals, as some people do, won’t solve the problem. At least this new study attempts to quantify the calculation owners face, and suggests that holiday-rentals might not be solely to blame for rising rents in the Balearics.

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