Regulating short-term rentals could negatively impact economy, says director

Delfi Partners director Michalis Loizou on Thursday argued against the notion that short-term rental properties in Cyprus are the primary cause of rising rental costs, suggesting that other factors contribute to this phenomenon.

He also warned that imposing strict regulations on short-term rentals could have negative economic consequences, particularly in tourism-dependent areas, by reducing property values, increasing non-performing loans, and making destinations less competitive.

“As the popularity of renting residential properties on a short-term basis grows in Cyprus and Greece, so too does the debate about their impact on the residential property market,” Loizou said.

“While some advocate for stricter regulations to curb rising rents and preserve housing for locals, it is important to recognise the broader economic implications of such measures,” he added.

Delfi Partners director Michalis Loizou

He also said that “observing and analysing market forces, rather than imposing strict regulations, seems a wiser approach, with spatial planning rules for each area being applied instead”. He explained that this is because the notion that short-term rentals are the primary cause of rent increases is not supported by evidence. “In reality”, he continued, “the factors contributing to rising rents are numerous and complex”. Loizou said that restricting short-term rentals would not address the underlying causes of increasing housing costs but would have significant negative impacts on the broader economy.

“For example, in areas that rely economically on tourism, such as coastal regions, property owners often benefit from higher incomes through short-term rentals compared to long-term leases,” he stated.

“Limiting this income potential could lead to a decrease in property values, with knock-on effects in other sectors, such as banking, where property values play a critical role in financial stability,” he added.

Additionally, Loizou said that this could lead to an increase in non-performing loans, in the event where a borrower has reduced income and is unable to service their loan.

“This chain reaction would destabilise the economy, leading to consequences far more serious than the issues the proposed stricter regulations aim to address,” Loizou said.

Loizou also pointed out that with tourism being both Cyprus and Greece’s economic cornerstone, “short-term rentals now play a crucial role in its modern development”.

These rentals, he explained, “provide affordable and varied accommodation options, which are particularly attractive to price-sensitive tourists who are vital to the local economy”.

“By spending less on accommodation and choosing a holiday rental, they leave more money in the local economy,” he stated.

“At the same time, if short-term rentals are subject to strict regulations, the resulting reduction in available options could lead to higher accommodation prices, making these destinations less competitive in the global tourism market,” he added.

Moreover, he argued that the presence of short-term rentals supports a balanced local hospitality market, preventing hotels from dominating and ensuring that prices remain competitive.

He also said that this healthy competition allows a diverse range of tourists, including those who are more budget-conscious, to visit and contribute to the local economy.

“It is clear that while the concerns driving the push for regulation of short-term rentals are understandable, the proposed solutions may negatively impact the country’s economy instead of benefiting it,” Loizou stated.

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“Policymakers in Cyprus and Greece should adopt a balanced approach, allowing the market to play a significant role in determining the use of short-term rentals, while implementing sensible regulations where needed to address specific issues without stifling the market,” he added.

What is more, Loizou said that the discussion on short-term rentals in Cyprus and Greece should focus on creating a regulatory framework that acknowledges 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 realised without destabilising local economies,” Loizou said.

“Strict restrictions on short-term rentals may seem like a quick fix, but the long-term consequences could be extensive and detrimental to the very communities they aim to protect,” he added.

On the other side of the argument, the Cyprus Real Estate Agents Registration Council has repeatedly spoken against short-term rental properties.

Council president Marinos Kineyirou recently told the Cyprus News Agency (CNA) that short-term rentals were pushing rental prices up and making things difficult for students.

He also stated that something needed to be done, potentially even banning short-term rentals outright.

However, Kineyirou acknowledged that “the rise in prices is not only attributable to short-term rentals but also to the demand that arose due to the influx of foreign labour, mainly in IT companies”, referencing the limited supply in rental properties.

Meanwhile, in June of this year, Kineyirou said that “the way short-term rentals currently operate causes multiple problems in key economic sectors like tourism and real estate”.

He added that “the state loses tax revenue, and the effects impact society and citizens”.

At the time, Kineyirou reiterated that short-term rentals, especially apartments, drive up rental prices by reducing the supply of long-term rental properties.

“This is one of the reasons for the steep rise in rental prices, as a significant number of properties are removed from the market at a time of increased demand due to high interest rates and inflation, making home buying difficult,” he explained.

Elsewhere, Association of Cyprus Tourist Enterprises (Stek) general manager Chrisemily Psilogeni also spoke against the practice.

Psilogeni said in July that “para-hospitality” has been a concern for Stek since 2006, and specific suggestions have been made on the matter.

She mentioned that 37 per cent of available beds in Cyprus come from short-term rentals.

Moreover, 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.

However, only 7,200 properties were registered with the Deputy Ministry of Tourism.

These accommodations, the association said, are not just competing with hotels, but also increase rental costs for locals, contribute to the housing shortage, and change the local character of cities.

Stek’s suggestions on the issue include limiting the number of days a property can be rented to 90 days per year.

Finally, the association also proposed banning the practice in city centres where there is a housing shortage, making the payment of a tourist accommodation fee mandatory, as is the case with hotels, and adopting safety and health regulations.