The Puerto Rico Tourism Company has continued to highlight the successful recovery of the tourism industry after the devastating impacts of hurricanes Irma and Maria in 2017, and the ongoing Covid-19 pandemic. Just two weeks ago, Discover Puerto Rico’s CEO, Brad Dean, spoke to the U.S. Senate’s Subcommittee on Tourism, Trade, and Export Promotion “showcasing” the industry’s recovery.
“As we emerged from the depths of this crisis, the worst ever in the history of our industry, Puerto Rico’s tourism industry set all-time records in 2021, with more visitors, more tax collections, and (perhaps the most important statistic of all) more people employed in leisure and hospitality than ever before in our history,” Dean explained.
Those assertions have been confirmed by a study commissioned by Airbnb, Inc. to independent global advisory firm Oxford Economics, and published last week. The study. “Economic Impacts of Airbnb in Puerto Rico,” details the contribution of the online lodging marketplace to Puerto Rico’s tourism industry and economy, as well as other aspects of the island’s economy. It must be noted, though, that there is some inconsistent data in the study, as it was presented to the press.
According to Oxford’s study, the tourism industry contributed $3.7 billion to Puerto Rico’s Gross Domestic Product (GDP) in 2021, and directly supported 101,000 jobs. Of those $3.7 billion, $872.4 million (23.5%) came from short term rentals operating on the Airbnb platform.
Oxford’s study also estimated the total spending by Airbnb guests to be $1.7 billion, with guest spending accumulating almost a fourth (23.4%) of all tourism related activities.
If the hospitality sector continues to rebound from the impacts caused by the pandemic and Hurricane Maria in 2017, the study estimates, visitor spending in general is expected to exceed $8 billion by 2025.
According to Ángel Terral, Airbnb director for Mexico and the Caribbean, the company has a little over 15,000 rental units on the island and more than 8,000 registered hosts. The term host is used to refer to property owners, administrators or operators participating on the platform. Terral explained the difference between the number of units and hosts arguing there are hosts who have “a house with three rooms and list each room independently.”
Terral said 92% of the hosts reported to be Puerto Rico residents.
“In the last few years, short-term rentals added a great deal to Puerto Rico’s lodging capacity and helped our tourism industry recover. Last year Puerto Rico set new records in lodging income, tax collections, and people employed in the tourism industry. The recovery was an industry-wide effort and short-term rentals had a special role in the process,” said Ricardo Cortés, director of Public Affairs of Discover Puerto Rico.
According to the study, non-resident guests account for the majority of spending made by people booking through Airbnb.
According to Terral, “economic activity stimulated by the people using Airbnb benefits Puerto Rico in general, promoting employment and income in communities and industries. Also, most of the spending by guests who stayed at Airbnb occurs in a range of non-accommodation sectors such as restaurants, stores and transportation providers, and in different types of business categories...”
Figures regarding Airbnb operations in Puerto Rico are very favorable. But, regardless of that, there is a downside to Airbnb and short term rentals’ business.
The opposition to short-term rentals in Puerto Rico points to the current lack of affordable housing options as a main determent. The reasoning behind it being that individuals are buying up affordable housing and converting them into short-term rentals instead of renting it out, long term, to local residents, who are quick to point out that, as rent has increased, the number of places to live in has conversely decreased.
A UCLA study on “The Effect of Home-Sharing on House Prices and Rents” supports this claim. The study shows precisely how Airbnb affects home prices and rents. From 2012 to 2016, “this study found that every 10% increase in the total number of Airbnb rentals led to a 0.42% increase in rent prices and a 0.76% increase in house prices in a given area.”
This information comes to many Puerto Ricans with little to no surprise. This phenomena of buying property with the hopes of converting it into a short term rental is not a phenomenon experienced by just one municipality. Rather, you can see this trend occurring across the island.
Why does Airbnb and other short-term rentals affect home prices this way? It all boils down to the laws of supply and demand. When landlords take long-term rentals off the market and convert them into the short-term rental market a contraction in supply for long-term rentals occurs. Meaning tenants are forced to bid higher for the remaining properties. Thus, the competition increases prices and the rental yields.
Jennifer Márquez, the founder of The Reserve LLC, a hospitality management company, said in an interview with USA Today that, “when you drive around you can tell when it’s a local person or an outsider. Every single home that you see that is going through a renovation, is getting ready for Airbnb. It’s not getting ready to be a [long term] rental home.” Márquez added that, “you have locals, and then you have the internationals, you know… travelers who saw potential because of Act 20 and Act 22 tax incentives.”
Act 20 and Act 22 (now grouped under Act 60) are tax incentives for U.S. residents that were designed to entice investors to take up residency in Puerto Rico. For example, “Americans who move existing, or create qualifying businesses or investments in Puerto Rico, can lower their federal income tax rate from up to 37%, in the states, to zero on income earned in Puerto Rico,” reported USA Today.
The Department of Economic Development and Commerce (DDEC, for its Spanish acronym) reported on its website that, “between 2015-2019, Act 20 and 22 beneficiaries invested $2.5 billion in Puerto Rico’s economy, while directly and indirectly creating an estimated 36,200 jobs.” According to the DDEC, “68% of Act 22 beneficiaries bought property in Puerto Rico.”
When asked her opinion on whether only international investors are buying properties or not, Márquez said “you have a little bit of everything… It’s like 50-50.”