Director warns that regulating short-term rentals may harm the economy

On Thursday, Delfi Partners director Michalis Loizou challenged the belief that short-term rental properties in Cyprus are the main driver behind rising rental prices, suggesting that other, more complex factors contribute to this issue.

Loizou also cautioned that imposing stringent regulations on short-term rentals could have unintended negative consequences on the economy, particularly in areas heavily reliant on tourism. Such regulations could lead to a decrease in property values, an increase in non-performing loans, and a loss of competitiveness for these destinations.

“As the trend of short-term residential rentals gains momentum in both Cyprus and Greece, the debate surrounding their impact on the housing market intensifies,” Loizou remarked. “While some argue for tighter regulations to curb rising rents and ensure housing availability for locals, it is crucial to consider the broader economic implications of such actions.”

He went on to explain that observing market dynamics, rather than enforcing rigid regulations, might be a more prudent approach. Loizou pointed out that there is no substantial evidence to support the idea that short-term rentals are the primary cause of rent increases. “The reality is that rising rents are the result of numerous and complex factors,” he noted. He argued that restricting short-term rentals would not address the root causes of escalating housing costs, but would instead have significant negative impacts on the economy.

“For instance, in tourism-dependent areas, such as coastal regions, property owners often earn higher incomes through short-term rentals compared to long-term leases,” he explained. “Reducing this income potential could lower property values, which would have a ripple effect on other sectors, particularly banking, where property values are crucial for financial stability.”

Loizou also warned that if borrowers’ incomes are reduced due to restrictions on short-term rentals, this could lead to an increase in non-performing loans, further destabilizing the economy.

“This chain reaction could have far-reaching consequences, more severe than the issues that stricter regulations aim to solve,” he added.

Loizou highlighted the importance of short-term rentals to the tourism industry in both Cyprus and Greece, describing them as essential to the sector’s modern development. These rentals, he explained, offer affordable and diverse accommodation options, attracting price-sensitive tourists who are vital to the local economy. “By spending less on accommodation and opting for holiday rentals, these tourists contribute more to the local economy,” he said.

However, Loizou warned that if strict regulations are imposed on short-term rentals, the resulting reduction in available options could drive up accommodation prices, making these destinations less competitive in the global tourism market. He also noted that short-term rentals help maintain a balanced local hospitality market, preventing hotels from dominating and keeping prices competitive. This, in turn, allows a wider range of tourists, including budget-conscious travelers, to visit and support the local economy.

“It’s evident that while the concerns fueling the push for regulation of short-term rentals are understandable, the proposed solutions could potentially harm the economy rather than help it,” Loizou stated. He urged policymakers in Cyprus and Greece to take a balanced approach, allowing market forces to play a significant role in the use of short-term rentals while implementing sensible regulations where necessary to address specific issues without stifling the market.

Loizou further suggested that discussions around short-term rentals in Cyprus and Greece should focus on creating a regulatory framework that recognizes the economic benefits these rentals bring while addressing the concerns of local residents. “By allowing market forces to guide the use of these properties within reasonable regulatory boundaries, both countries can ensure that the benefits of tourism and property development are realized without destabilizing local economies,” he concluded.

On the other side of the debate, the Cyprus Real Estate Agents Registration Council has consistently opposed short-term rental properties. Council president Marinos Kineyirou recently told the Cyprus News Agency (CNA) that short-term rentals were driving up rental prices and creating challenges for students. He even suggested that an outright ban on short-term rentals might be necessary, although he acknowledged that the increase in rental prices is not solely due to short-term rentals, but also the rising demand from foreign workers, particularly in IT companies, amid a limited supply of rental properties.

In June, Kineyirou argued that the current operation of short-term rentals was causing multiple problems in key economic sectors such as tourism and real estate. He pointed out that the state loses tax revenue due to these rentals and that they contribute to social issues by increasing rental prices and reducing the availability of long-term rental properties.

Chrisemily Psilogeni, general manager of the Association of Cyprus Tourist Enterprises (Stek), also voiced concerns about the impact of short-term rentals. Psilogeni noted that “para-hospitality” has been a concern for Stek since 2006, and the association has made specific suggestions to address the issue. According to data collected by Stek, approximately 15,000 properties were advertised for short-term rental in areas controlled by the Republic of Cyprus in June 2024, but only 7,200 were registered with the Deputy Ministry of Tourism. The association argued that these unregistered accommodations not only compete with hotels but also drive up rental prices, exacerbate the housing shortage, and alter the character of local cities.

Stek’s recommendations include limiting the number of days a property can be rented to 90 days per year, banning the practice in city centers where there is a housing shortage, requiring the payment of a tourist accommodation fee, and adopting safety and health regulations similar to those that apply to hotels.

source: Delfi Partners