Short-term rentals and over-tourism: challenges and solutions in Prague
As tourism increases in the Czech Republic, an increasing number of visitors are flocking to Prague, and a growing proportion of them are turning to Airbnb for short-term accommodations, while prices of Airbnb properties in the Czech capital are significantly growing.
While tourism can bring numerous benefits to a city, contributing to the local economy, cultural exchange, and overall development, when it becomes excessive, it can pose significant challenges and problems for the city. A surge in tourism can strain local infrastructure, public facilities, and historical sites leading to overcrowding, longer queues, and increased wear and tear on the city’s heritage sites and attractions. Additionally, overtourism can impact the residents’ daily lives by driving up living costs, such as inflated property prices driven by short-term rental demand, which results in difficulties for locals to afford housing. Moreover, congestion and noise pollution can disrupt the quality of life for residents in popular tourist areas.
In response, the City of Prague is actively seeking ways to regulate the growth of Airbnb rentals, primarily to minimize neighborhood disruptions and control price escalation. Additionally, concerns arise from Airbnb’s influence on local rental inflation and the legal uncertainties surrounding accommodation rentals via the platform.
Short-term rental prices surged by 25% over the last two-year period
In 2023, Prague experienced a substantial increase in tourism, welcoming 7.4 million visitors, representing a significant 24 percent year-on-year rise. Anticipating continued growth in tourist numbers this year, this trend is expected to drive up demand, thereby almost certainly leading to price increases. This projection is bolstered by the high number of bookings already confirmed for this spring and summer, which is expected to reach its peak since the onset of the coronavirus pandemic in 2020.
Data from short-term rental data analytics firm AirDNA reveals that the average daily rate for accommodation in Prague via Airbnb has surged by approximately 25% over the past two years. In April 2022, in fact, the average price of renting a medium-sized apartment per night stood at CZK 2,500, whereas today, this figure has risen to CZK 3,200.
Furthermore, a recent study conducted by the Prague Institute of Planning and Development (IPR) corroborates the increasing prevalence of apartments in the capital being utilized, sometimes unlawfully, for short-term rentals through Airbnb. The study revealed that approximately 8,000 apartments in the city are being rented out on Airbnb, which is 1,000 more than in mid-2021, with the majority (about eight out of ten) located in the city center.
Legal constraints
According to the Building Act, rooms can only be rented out for short-term stays if the building is designated for accommodation purposes. If not, the apartment owner must obtain permission from the building owner but this step is often overlooked.
Yet, this is not the only limitation; other factors contribute to the feasibility of renting a room. An example is given by a notable legal case from last year that set a significant precedent: a Prague district court prohibited the building owner from leasing rooms for short-term stays through Airbnb due to noise and disturbance complaints from other residents in the building and the owner lacked the necessary legal basis to sublet his apartment to other guests.
The impact on rental inflation
The rise and proliferation of short-term rental platforms have sparked considerable debate among governments, the hotel industry, real estate advocates, housing activists, and local residents, not only in the Czech Republic but worldwide, regarding the impact of such rentals on the availability and affordability of long-term rental housing.
A recent article in the Harvard Law & Policy Review discusses how short-term rentals diminish affordable housing supply by distorting the housing market through two interconnected mechanisms. The first mechanism involves simple conversion: any housing unit initially occupied by a city resident and now listed on Airbnb year-round effectively exits the rental market and is essentially repurposed as a hotel room. This results in a tangible, albeit likely moderate, increase in rent prices, particularly concentrated in affluent or gentrifying neighborhoods in the central core, and, more significantly, this conversion diminishes the already-scarce supply of affordable housing.
The second mechanism is referred to as “hotelization”: As long as property owners can rent out rooms on Airbnb at rates cheaper than hotel rooms, still earning significantly more compared to residential or rent-controlled rates, there is a strong incentive to list every unit in a building on Airbnb rather than renting to long-term residents. This trend leads to the creation of “cottage hotels,” reducing the availability of housing and contributing to displacement and segregation.
Mounting evidence suggests that these effects are indeed real. In fact, this observation aligns with findings from other independent academic studies, such as a paper published by researchers at the National Bureau of Economic Research, UCLA, and the University of Southern California which concluded that in the US, a 10% increase in Airbnb listings corresponds to a 0.42% increase in rents and a 0.76% increase in house prices.
Considering the exponential growth of the short-term rental industry by 800% since 2011, it is thus understandable why many individuals are concerned about its impact on the affordability and availability of long-term rental housing.
The City of Prague is working on a stricter regulation
The City of Prague is collaborating with the Ministry of Regional Development on a proposed bill that would empower cities to autonomously regulate short-term apartment rentals on booking platforms and which is expected to be approved by the Chamber of Deputies later this year, with the primary aim of reducing the number of apartments available for short-term rental and the likelihood of tax evasion.
As previously discussed in one of our earlier articles, the amendment mandates that short-term accommodation providers register and obtain a unique identification number, which must be prominently displayed on each listing on accommodation platforms. Additionally, the platforms themselves will be responsible for regularly transmitting information about these numbers to the Ministry of Regional Development.
Sources: https://www.expats.cz/, https://www.airdna.co/, https://www.czso.cz/, https://granicus.com/, https://www.altusgroup.com/
