Implications of Supreme Court Ruling on Short-Term Rentals in Spain

In a significant legal development, Spain’s Supreme Court has granted homeowner associations the authority to ban short-term rentals in residential buildings with a majority vote (60 percent). This ruling is expected to have a substantial impact on the short-term rental market, particularly in high-demand regions such as Málaga and the Costa del Sol, where holiday rentals have been a major driver of property price inflation and local housing shortages.

Housing Market Pressures in Málaga and Costa del Sol

The Costa del Sol, and Málaga in particular, have seen a sharp increase in both rental and property prices over the past few years, driven by a combination of factors, including the proliferation of short-term rental properties. According to data from Sur in English, Málaga is experiencing one of the steepest rises in rental prices in Spain, exacerbating an already tight housing market. Local residents are facing intense competition for housing, not only from other residents but also from property owners looking to capitalise on the growing tourism market.

Recent figures show that holiday rental prices on the Costa del Sol rose by 8.9% in the first quarter of 2024, continuing a consistent upward trend. Adjusted for inflation, the real increase stands at 5.8%, reflecting ongoing demand pressures. Since 2019, short-term rentals have grown substantially, with the number of tourist properties increasing by 81.8%, and bed capacity expanding by 84%. This surge is closely tied to Málaga’s record-breaking tourist numbers; in 2023, over 20 million passengers passed through Málaga Airport, further straining the city’s housing infrastructure.

Supreme Court Ruling: A Regulatory Turning Point

The Supreme Court’s ruling provides a legal framework that allows communities to regulate short-term rentals without requiring unanimous consent—a major departure from previous norms. This decision comes after high-profile cases, such as the 2019 Marbella incident, where residents successfully banned short-term rentals in response to noise, theft, and public disturbances caused by holidaymakers. The ruling clarifies the voting threshold for these decisions, resolving confusion stemming from the 2019 amendment to Spain's Horizontal Property Law, which had previously led to inconsistent rulings across different regions.

This ruling offers much-needed clarity and empowers local residents, particularly in urban areas where tourism and real estate speculation have driven up property prices. For example, Málaga’s rapid growth in tourism-related businesses—up by 78.8% from 2019 to 2023—has been paralleled by a 64% rise in bed capacity, primarily in short-term rental properties. With this legal backing, homeowners in similar tourist-heavy areas may now have a greater ability to limit the negative externalities of the short-term rental market, such as noise, overcrowding, and increased demand for housing.

Tourism Growth and Accommodation Capacity Constraints

The dramatic rise in short-term rentals is closely linked to the broader tourism boom across the Costa del Sol. Since 2019, the region has seen an 80% increase in tourist properties, adding nearly 600,000 beds to its accommodation capacity. Hotels, however, are operating at near capacity, with only a 6.4% increase in traditional accommodation, indicating that the short-term rental market has been critical in absorbing the influx of tourists.

This trend has led to a mismatch between tourism growth and residential housing needs. Despite efforts to increase hotel capacity, including the addition of over 6,000 luxury beds between 2019 and 2023, demand for short-term rental properties remains high. The expansion of high-end tourism, reflected in new developments such as the Hotusa and Gerard Piqué hotel projects, underscores the region’s shift toward affluent visitors. However, the rise of holiday rentals has had a disproportionate impact on the affordability of housing for local residents.

Implications for the Short-Term Rental Market

The Supreme Court’s decision is likely to lead to increased regulation of short-term rentals in key tourist markets. In cities like Málaga, where the rise in short-term rentals has exacerbated housing affordability issues, we expect to see more homeowner associations take advantage of this ruling to restrict or ban these rentals. This could result in a rebalancing of the housing market, with some properties returning to the long-term rental market, potentially easing upward pressure on rents. However, the implementation of these bans will likely vary across regions and could be met with resistance from property owners and investors who have benefitted from the lucrative short-term rental market.

In addition, the regulation could push some properties into the luxury hotel sector, as demand from high-end tourists continues to grow. The Costa del Sol is already seeing significant investments in luxury accommodations, with nearly half of the new beds added between 2019 and 2023 in four- and five-star hotels. This shift toward high-end tourism could further diversify the region's accommodation offering, potentially creating opportunities for investors in the luxury segment.

Conclusion

Spain’s Supreme Court ruling marks a turning point in the regulation of short-term rentals, particularly in regions like Málaga and the Costa del Sol, where the tourism boom has significantly impacted housing affordability. While the decision provides local communities with the tools to curb short-term rentals, the broader implications for the real estate and tourism sectors remain to be seen. Investors and property owners will need to closely monitor regulatory developments, as well as shifts in the accommodation market, to navigate the evolving landscape in one of Spain’s most dynamic regions.