Industry Insight: There’s still hope for Puerto Rico — Communities are awake and active
Communities and small-lodging leaders argue that House Bill 1557, if passed by the Senate as is, would legalize the anarchy prevalent in the independent short-term rental sector, increasing ethical, fiscal, environmental and security concerns, and will exacerbate gentrification in residential communities.
Last week, I had the privilege to participate in the “Nos Quedamos” conference organized by dozens of community organizations, El Enjambre and the Hispanic Federation to discuss the harmful effects on communities and small businesses caused by the lack of oversight of independent short-term rentals (STR), often referred to as Airbnbs. The room was full of highly energized, knowledgeable and committed representatives from most key tourism regions of Puerto Rico.
Since 2015, the exponential growth of STRs has significantly altered the transient lodging market in Puerto Rico. Although it has offered new options for travelers and created additional income opportunities for some families, its excessive incursion into condominiums and residential communities has crippled the availability of affordable housing, negatively impacted the safety and quality of life for residents, reduced the useful life of common facilities, and created an unbalanced business environment for legal small lodgings. This situation has been exacerbated by the selective enforcement of current laws and regulations with STR commercial operators.
The quality of the shared information and the varied experience of the presenters at the conference from local areas and various North American cities, showed that our problem is complex but common, and that there are viable ways to address the situation. Regulations adopted in hundreds of U.S. cities shall serve as a guide to our legislators.
Discussions revealed that the damage being caused by STRs to residential communities and the environment is greater than imagined. Examples of gentrification, security breaches, unnecessary noise, and destruction of our natural resources and iconic attractions are spread throughout the island. Even local STR operators who reside in the communities where they participate in the sharing economy, do not appreciate the current disorder.
Although our legal framework applies to all commercial activity, regardless of their size and location, it is not applied uniformly to STR businesses, leading to widespread compliance issues, tax evasion, safety and security breaches, and the creation of hundreds of “ghost hotels.” These are homes or buildings converted into STRs of three or more independent rooms, without the required government permits and endorsements.
Meanwhile, digital platforms, like Airbnb, and professional hosts often advocate for deregulated STR operations. They argue that these STRs represent an opportunity for entrepreneurship and supplemental income generation for disadvantaged families. The truth is that 88% of STRs are managed by property management companies, realtors and commercial consolidators that operate dozens and even hundreds of units throughout the year.
Moreover, despite generating millions of dollars in revenue, over 80% of STR operators are not registered, nor do they contribute to maintaining the common infrastructure and public services used to operate their businesses. In 2023, STRs accumulated north of $800 million in sales, but evaded paying about $120 million to different government agencies, including $29 million in room tax.
In conclusion, HB-1557, in its current version, is contrary to the best interests of the people of Puerto Rico. Our communities are awake and active in demanding responsible legislation that recognizes STRs as a commercial activity, as defined by the Puerto Rico General Permits Office, the U.S. Internal Revenue Service and multiple courts in the United States, and that ensures these businesses comply with all applicable regulations.
This will make it possible to protect the interests of all parties involved, while ensuring sustainable growth of the tourism sector, and the short-term lodging sector.
