In this article, Casey Halloran examines the implications of short-term rentals in Costa Rica and offers some strategies for sustainable tourism management to preserve both local communities and the “pura vida” spirit.
Tourism in Costa Rica is at a critical juncture. Like other countries that rely on tourism, the rapid expansion of short-term rental properties, facilitated by platforms like Airbnb, presents both opportunities and challenges. While this growth offers economic benefits, it also risks altering the fabric of local communities and fostering resentment towards tourists—a situation Costa Rica must avoid to maintain its “pura vida” reputation.
Recent events in European tourist destinations like Barcelona and Mallorca in Spain serve as cautionary tales. In Barcelona last month, locals protested against tourism, with some even spraying water at tourists. In Mallorca, residents struggle with soaring housing costs and overcrowding, leading to calls for “Less Tourism, More Life.” Costa Rica, famous for its “pura vida” ethos, faces the challenge of maintaining this balance while managing its short-term rental market.
This article examines the scale of the short-term rental phenomenon in Costa Rica, its potential for generating significant revenue, and its impact on local communities. By understanding these factors, we can explore strategies to harness the economic benefits of tourism while preserving the unique character that makes Costa Rica a beloved destination.
The Scale of Short-Term Rentals in Costa Rica
The vacation rental market in Costa Rica has experienced massive growth, estimated to be worth around $800 million per year. According to data from Costa Rica Investments, there are 35,950 short-term rental listings across the country in August 2024.
Certain destinations stand out for their high concentration of rentals. The Central Pacific community of Jacó leads with some 2,904 average monthly listings, followed by Tamarindo in Guanacaste with 2,263. Other popular locations include Cahuita on the Caribbean coast, San José, and Cobanó (encompassing Santa Teresa and Montezuma on the Nicoya Peninsula), all with over 2,000 average monthly listings. Except for San José, these are all small communities.
And the numbers are increasing, too. The number of listings in Jacó have increased by 13% over the past year. Tamarindo has seen a 19% increase in listings, while Cahuita has over 27% more listings than a year ago. The community of Bahia Ballena, on the southern Pacific coast, has seen short-term rental listings grow by more than 35%.
On average, some 40% of listings across Costa Rica are available year-round. In Jacó, this figure rises to 49%, and in Tamarindo, it’s 46%. These numbers suggest a significant portion of properties are dedicated short-term rentals rather than occasionally rented primary residences, impacting housing availability for local residents.
The market also shows varying degrees of professionalization. Across the country, only 4% of listings are professionally managed. This rises in places like Tamarindo (22%) and Jacó (20%). In Costa Rica, individual owners overwhelmingly manage properties, often as a side hustle, largely untaxed and unregulated.
Curious about the hottest vacation rental locations in Costa Rica? Explore the top 15 destinations by number of @airbnb listings to find out what makes each area popular. #CostaRica #Travel #Investinghttps://t.co/C3BygcoxNH
— Central America Living (@VidaAmerica) July 8, 2024
The Untapped Potential: Tax Revenue and Economic Impact
While the growth of short-term rentals presents challenges, it also offers a significant opportunity for increased tax revenue. This $800 million industry operates largely outside the formal tax structure, representing a substantial potential resource for both national and municipal governments.
Conservative estimates suggest that proper regulation and tax collection from short-term rentals could result in an annual windfall of up to $100 million for the Costa Rican government. This figure is based on the application of Costa Rica’s 13% Value Added Tax (IVA) to the rental income generated by these properties. For a country in dire need of funds for infrastructure, education, and social programs, this represents a considerable potential boost to public coffers.
The potential for significant tax revenue from short-term rentals is not theoretical. In December 2023, Airbnb agreed to pay €576 million ($620 million) to Italian tax authorities to settle a dispute over uncollected taxes from hosts. This case demonstrates the substantial sums at stake when taxing short-term rentals. While Costa Rica’s market is far smaller than Italy’s, the principle remains the same: proper regulation and tax collection can yield significant revenue for the government.
The impact on local municipalities in Costa Rica could be transformative. In Tamarindo, the annual revenue potential per property reaches $62,863, while in Nosara, it’s $67,441. These figures represent crucial funds that could be reinvested into local infrastructure, security measures, and sustainability initiatives—vital for securing the future of tourism in these areas while improving the quality of life for residents.
Bringing short-term rentals into the formal economy could level the playing field with traditional lodging options. Hotels and registered accommodations are subject to strict regulations and tax obligations, while many short-term rentals operate in a regulatory grey area. This disparity creates an unfair advantage, with some estimates suggesting that the lack of regulatory compliance gives short-term rentals a 25-35% cost advantage over traditional lodgings.
The Italian case highlights the importance of clear legislation. Italy requires landlords to pay a 21% tax on their earnings from short-term rentals, with plans to increase this to 26%. It shows how a clear legal framework can facilitate tax collection from platforms like Airbnb.
The goal isn’t to stifle the short-term rental market but to integrate it responsibly into the broader tourism ecosystem. By implementing fair regulations and tax structures, Costa Rica can ensure that the benefits of this booming sector are shared more equitably among all stakeholders – from property owners and platforms to local communities and the government.
The Community Impact: Housing and Local Dynamics
While the economic potential of short-term rentals is significant, their rapid growth is not without consequences for local communities. The “Airbnb Effect” is reshaping neighborhoods across Costa Rica, particularly in popular tourist destinations.
One of the most pressing issues is the impact on housing availability and affordability for long-term residents. A significant portion of the housing stock in places like Jacó, Tamarindo, and elsewhere is being diverted from long-term residential use to short-term tourist accommodation. The bottom line is that beach communities in Costa Rica are small, and the proliferation of short-term rentals puts pressure on the local housing market. As more properties convert to vacation rentals, fewer homes are available for long-term residents, many of whom work in the tourism industry that serves these visitors.
The result is a paradoxical situation where tourism industry workers struggle to find affordable housing in the very communities where they work. This can lead to longer commutes, reduced quality of life, and potentially a shortage of workers in key tourism-related jobs.
The influx of short-term rentals can also alter the character of communities, something seen in Europe, where whole neighborhoods in some cities no longer have locals living in them. With a constant turnover of visitors, the sense of community that once defined these areas can erode. Local businesses may shift their focus to cater to tourists rather than residents, further changing the fabric of these communities.
There’s also the question of equity. While some property owners benefit from the lucrative short-term rental market, others in the community may bear the costs in terms of reduced housing options and changing neighborhood dynamics. This disparity risks creating a two-tiered system within communities, potentially fostering resentment between those who profit from tourism and those who feel displaced by it.
These issues are not unique to Costa Rica. Many popular tourist destinations worldwide have similar challenges to deal with. However, Costa Rica’s reputation for “pura vida” and its historically harmonious relationship between locals and visitors make addressing these issues particularly crucial.
Costa Rica’s tourism industry is at a crossroads. Learn how unlicensed vacation rentals are impacting local communities and creating a growing divide between locals and tourists/expats.https://t.co/DSLTWFFoEf
— Central America Living (@VidaAmerica) May 17, 2023
Potential Solutions: Balancing Growth and Community Preservation
As Costa Rica grapples with the challenges posed by the fast-growing short-term rental market, it should explore potential solutions that can harness the economic benefits while mitigating negative impacts on local communities:
- Enforcement of Existing Laws: Costa Rican law already stipulates that the minimum rental term is three years, with tenants having the right to stay for this duration. The only legal way to offer accommodations for less than a year is to register as a tourism business with the ICT (Costa Rica Tourism Board). Stricter enforcement of this existing law could significantly impact the short-term rental market.
- Registration and Licensing: Requiring short-term rental owners to register as tourism businesses could level the playing field with hotels and regulated rentals. This would not only facilitate tax collection but also ensure compliance with safety standards and local regulations.
- Platform Accountability: Requiring platforms like Airbnb to share data with local authorities and ensure their listings comply with local regulations could significantly aid enforcement efforts. This could include verifying that listed properties are registered with the ICT.
- Addressing Seasonal Pricing Fluctuations: Current practices of dramatically changing rental prices based on high or low seasons are technically illegal but widely practiced. Developing mechanisms to enforce consistent pricing or regulate seasonal changes could help stabilize the local housing market.
- Community Benefit Funds: A portion of the tax revenue generated from short-term rentals could be earmarked for community development projects, affordable housing initiatives, or infrastructure improvements in the most impacted areas.
- Primary Residence Requirement: To discourage the conversion of long-term housing into full-time short-term rentals, Costa Rica could require that short-term rental operators live in the property as their primary residence for a significant portion of the year. This aligns with the suggestion for travelers to seek out Airbnb rentals where the owner actually lives.
- Education for Tourists: Encouraging tourists to stay in hotels, guest homes, or rentals managed by ICT-registered agencies could help support regulated businesses. This could be part of a broader education campaign about responsible tourism in Costa Rica.
These measures could represent a starting point for Costa Rica to balance the growth of the short-term rental market with the needs of its communities.
Preserving “Pura Vida” Through Responsible Tourism Management
Costa Rica stands at a crossroads with its short-term rental market. The potential for significant economic gains is clear, but so are the risks to local communities and the cherished “pura vida” lifestyle. By learning from other tourist destinations and implementing thoughtful, balanced regulations, Costa Rica can chart a path that maximizes the benefits of tourism while minimizing its drawbacks.
The goal should not be to stifle the short-term rental market but to integrate it responsibly into the broader tourism and housing ecosystems. This requires a concerted effort from government authorities, platforms like Airbnb, local communities, and tourists themselves.
Costa Rica can learn from Spain and take proactive measures. The main grievance in Barcelona and Mallorca is not tourists staying in hotels, but tourists staying in Airbnbs and squeezing locals out. By addressing the challenges of short-term rentals head-on, Costa Rica can ensure that its tourism industry continues to thrive, benefiting all its residents and preserving the unique charm that makes it a beloved destination for travelers worldwide.
Casey Halloran is the co-founder and CEO of the Namu Travel Group. He lives in San Jose, Costa Rica with his wife and children.
