Yves here. I encourage you to read past Don Quijones’ support, albeit qualified, for “sharing economy” business models. The justification is that they are “innovative”. Yet the technology, such as it is, is close to 20 years’ old Internet ideas, of the way Craigslist displaced classified advertising and travel sites like Travelocity and Priceline ate the lunch of travel agents.
Services like AirBnB depend on breaking local laws, generally both zoning and those that require licensing or regulation of hotels. And as I can attest from first hand examples in NYC and other cities, and is widely reported to take place in San Francisco and now apparently Barcelona, the idea that these services allow apartment owners to earn an extra buck when they are traveling or on vacation is considerably overstated. Many if not most of the units are dedicated AirBnB properties, meaning that housing stock has been taken out of the market and has been converted to an unregulated hotel. Yet this direct threat to communities’ ability to engage in planning and control over their neighborhoods has for the most part prevailed due to the “innovation” of throwing tons of outside money into influencing the political process (I was stunned when in SF briefly last year at the amount of radio ads I heard, all on the side of the pro-AirBnB position in an upcoming election).
And before you try raging that economic rationality always prevails and produces the best outcomes, a wee story. Portland, Maine turned down the opportunity to have a Ford plant in the 1930s. The city fathers didn’t want outside manufacturing money dominating their community. At the time, and easily through the 2000s, it would be easy to depict the decision as shockingly retrograde. It clearly cost the state development and a lot of jobs. GM or American Motors could even have followed and provided even more auto-related employment.
But Portland’s dogged sense of what it was and refusal to deviate from that kept it out of the Rust Belt bust. Even though Maine is still a poor state, Portland has become the Santa Fe of the east, and has been rapidly gentrifying in recent years. I was told (but have yet to have this confirmed) that its population grew 10% in the last year.
By Don Quijones, editor at Wolf Street. Originally published at Wolf Street
live in Barcelona, Spain, and two days ago, the strangest thing arrived in the mail: a sealed, unaddressed envelope bearing the blue stamp of the Barcelona city authorities. Inside was a sheet of paper with five shortish paragraphs explaining the Council’s decision to intensify its crackdown on “illegal” tourist apartments in the city.
Under a 2012 regional law, any apartment rented to visitors in Catalonia must be logged in the province’s Tourism Registry and have a permit. Unlicensed apartments “promote speculation, the underground economy, and could even threaten the harmonious and coexistence of resident communities” in the city, the letter warns.
In the last paragraph, the council urges local Barcelona residents to snitch on any neighbors who they believe are running illegal tourist accommodation operations in their buildings. Residents are invited to cross-check their neighbors’ apartments against an open-access database of the city’s registered tourist flats, and if their suspicions are confirmed, they can denounce their neighbors on a free, around-the-clock hot line.
Judging by how many of my friends and acquaintances have received the same letter, it’s safe to assume that it was sent out across the city. In other words, hundreds of thousands of Barcelona residents have just been asked to rat on their neighbors.
Raising the Stakes
This latest incendiary move significantly raises the stakes in a bitter war of words, threats, and actions between Barcelona City Council, headed by Ada Colau, the world’s “most radical mayor” (according to The Guardian), and the world’s biggest accommodation provider, Airbnb. In August last year, the Council warned that people caught running unlicensed apartments through websites would be offered the chance to have 80% of their fine cancelled if they allowed the city council to use the apartment as social accommodation for three years.
Since then, the Council has closed down 256 apartments that were being used as unlicensed tourist accommodation. The owners could face fines as high as €30,000. The Council also imposed a 20-fold hike in the maximum fine that can be levied on home rental sites to €600,000, after Airbnb and its rival Homeaway continued to advertise holiday apartments that did not have permits.
This is a frequent complaint across myriad jurisdictions, from New York to Amsterdam, to Stockholm and Berlin. For Airbnb, any further damage to its Barcelona market could be very costly. With 15,000 registered dwellings, the city is far and away the most popular Spanish destination for the platform’s users and is the fifth most popular global destination with guests.
But the San Francisco-based company faces an uphill challenge trying to charm Barcelona’s local populace. So incensed are residents that a recent city government poll found that respondents consider tourism a worse problem than poverty. Only unemployment and traffic ranked higher on their list of grievances.
And 2016 is a bumper year for tourism, as millions of international visitors shun destinations where security is a concern, such as Tunisia, Egypt, Turkey and even France. As such, the industry’s benefits and externalities are being felt even more sharply and more widely than ever before.
Over the Limit
A common complaint among residents is that the Barcelona they know and love has become a theme-parked city that is reaching the outer limits of its physical capacity — just as has happened with Venice, whose population has shrunk from 180,000 in the 1960s to less than 60,000 today, as more than 2 million visitors flood the city every year.
Barcelona’s tourism boom has brought with it a huge amount of money. According to Mastercard’s Global Destination Cities Index, Barcelona rakes in over $12 billion a year from tourism and is the third-ranked European city in terms of tourist expenditure, just behind the two global powerhouses of London and Paris. However, this money has come at a heavy price, as the documentary film Bye Bye Barcelona documents.
Rents in many neighborhoods are surging as real estate owners and developers refocus their attention on meeting the much more profitable needs of short-term visitors. Added to that, the sheer volume of tourist numbers are crowding out local residents from many of the city’s most attractive districts while putting unbearable strain on public services and the city’s private housing stock. In 2015 the city, with a total permanent population of 1.7 million, drew 8.3 million visitors (and that’s just those who stayed in hotels), almost a million more than the year before and a five-fold increase on the 1990 total.
“The center no longer belongs to us,” laments Manuel Delgado, an urban sociologist at Barcelona University. It’s a common complaint.
Another downside of Barcelona’s tourist boom has been the widespread closure of traditional, often family-run shops, bars, and restraurants as decades of rent controls recently came to an abrupt end. As a consequence, the city is fast losing its distinctive character – the same character that attracted tourists in the first place – in the face of homogenization that accompanies the arrival of multinational chain stores.
Protecting the Racket
The City Council’s multi-year campaign against the likes of Airbnb is not just about protecting Barcelona’s distinctive character, reducing pressures on public services or exerting some semblance of control over a market that has exceeded its limits and is now almost certainly in bubble territory; it is also about safeguarding its own source of funds.
It is about protecting its own racket.
Local hotels, hostels, pensiones, B&Bs, and registered tourist apartments all contribute handsomely to government coffers. By contrast, unregistered tourist apartments pay nary a cent. As for Airbnb, whose business was recently valued at €30 billion, it paid just €81,000 in taxes in Spain last year on the total revenue generated by the more than 35,000 holiday apartments it handles in the country — the equivalent of two-and-a-half euros per property.
Like many global tech giants, the company runs much of its business through Ireland, where corporation tax maxes out at just 12.5%. For years now the Irish government has bent over backwards to secure the patronage of the world’s biggest corporations. But its days as a grudgingly tolerated tax haven on the EU’s periphery may be numbered.
In Barcelona tensions continue to rise between the City Council and Internet accommodation mediators and their thousands of affiliated hosts, many of whom use the money to help pay their bills and stay in their homes. A group purportedly representing Airbnb hosts has already responded to the Council’s informant-recruitment campaign by urging local residents to sabotage the information hotline and website by flooding them with false leads.
Before the situation spirals completely out of control, a balance needs to be struck between protecting the interests of traditional businesses and residents, on the one hand, and accommodating new opportunities of the sharing economy, on the other. Yet even in cities that have been more willing to engage with companies like Airbnb, such as Amsterdam, public resentment against the ever-rising tide of tourists and the expansion of professional landlords using the platform to circumvent landlord-tenant and hotel regulations is on the increase.
What’s happening in Barcelona should serve as a stark warning to tourist accommodation intermediaries like Airbnb, Booking.com and Homeaway. If they don’t step up their game by offering serious concessions on regulatory and taxation issues, local governments all over the globe will end up assuming the role of legal guardian of the sharing economy by default. And that, as we’re already seeing, will not have pretty consequences. By Don Quijones, Raging Bull-Shit.
Trying to tax the Internet? Read… New Leak Confirms: Brussels Has Learnt Nothing from Brexit