The Ministry of Economic Affairs and Communications is burying its head in the sand again. Every year, millions of euros in tax revenue from short-term rental apartments go uncollected. Yet the ministry has postponed making decisions under the guise of conducting yet another analysis. Shall we do another study? Maybe set up a committee, too? In reality, no progress has been made over the past four years. The problems are only piling up.

When I served as Tallinn deputy mayor, I pushed to bring order to the place of short-term rental apartments in the market. It was then and largely remains today a black market that distorts competition and causes other problems as well.

In 2023, I took part in the Ministry of Economic Affairs and Communications' tourism roundtable where the various parties involved acknowledged the need for change. Then-Minister Tiit Riisalo and ministry officials were eventually forced to concede that the issue needed to be addressed. However, they wanted to wait and see what impact newly enacted EU legislation covering various intermediary platforms would have and to conduct yet another thorough analysis of the situation.

At the time, market participants were optimistic that the ministry wanted to tackle the problem. My sense, which I also expressed to several of those involved, was that the ministry would use the analysis process to smother the issue and consign it to a drawer. Here we are three years later and that prediction has come true. In fact, the scenario is even worse. The ministry is explicitly saying that no regulation is needed.

In reality, regulation is very much needed, both from the perspective of Estonia as a whole and, more specifically, Tallinn. Three main problems have long been in need of a solution: lost tax revenue, unfair competition in the accommodations market and the living environment in Tallinn's Old Town.

An estimated one-fifth of Tallinn's accommodation beds are in short-term rental apartments. Since there is no functioning registry of these properties, we essentially do not know who these (potential) taxpayers are or exactly how much tax revenue is being lost.

Estimates vary. The Estonian Hotel and Restaurant Association has calculated that the state is missing out on nearly €50 million in tax revenue. Maybe it is a little more, maybe a little less, but to quote Peeter Oja's legendary character Kert Ämmapets: "We're not talking about 3.50 here." In light of the state budget deficit, money is simply being left on the table. And supposedly there is no money for raising teachers' salaries, either.

When people talk about the free market, they often forget, accidentally or deliberately, that a genuinely free market is ensured by fair competition. Market participants operating on equal terms and under the same rules compete and generate profits — not in a free-for-all where some gain an advantage through unfair practices. An honest business model should not be built on failing to pay taxes.

Yet we have a significant number of accommodation providers — that is, short-term rental providers — that the law does not even treat as accommodation businesses. There are no standards and no guest registration requirements, creating an unfair competitive advantage in pricing because providers can save money by avoiding taxes.

In addition, residents of Tallinn's Old Town have for years raised concerns about the rapid deterioration in the quality of their living environment. The everyday problems associated with short-term rental apartments have crossed a critical threshold, leaving permanent residents without a livable environment. Each individual problem has to be dealt with separately, but by then the guests in the neighboring apartment have already left and the owners simply shrug their shoulders.

There is no systemic solution. As a result, more and more residents of Tallinn's Old Town are under pressure to give up. They, too, decide to move elsewhere and often put their former homes on the short-term rental market. It is a snowball effect and the result is a city center alienated from its local residents.

The ministry's approach to housing affordability is also misguided in light of the EU's new initiative. If short-term rentals have significantly driven up housing costs in many European cities, why should things turn out differently here? Are we going to wait until locals take to the streets with water pistols, spraying unsuspecting tourists like they have in Spain?

If we are already seeing signs that the short-term rental market is having a negative impact on housing affordability — and the ministry's own analysis says so, too — then now is precisely the time to create the tools and mechanisms that could help prevent the situation from spiraling out of control.

Enough of this inaction and endless rehashing of analyses. The country's finances, the tourism sector and residents who want a livable environment all need a solution at last. I am not talking about banning anything. Rather, local governments should be given some additional powers, short-term rental apartments should be treated as accommodation establishments and the necessary registry should be created.

--

Follow ERR News on Facebook and X and never miss an update!