Short-Term Rentals and the Housing Crisis

Introduction

In recent years, the European tourism market has been profoundly transformed by the development of digital platforms such as Airbnb, Booking and many others. Originally created as a casual way to rent a room, these businesses now constitute a structured economic sector generating billions of euros. The consequences of this phenomenon, especially in large cities, are evident. They include drastic reductions in housing availability for residents, rising rents and the transformation of traditionally residential neighborhoods into tourist hotspots.

Many local governments have therefore introduced restrictive measures to limit the spread of short-term rentals. Paris, Amsterdam, and Barcelona have adopted preemptive authorization systems, time limits and licence quotas. These measures, however, face a legal obstacle: European Union law. European Union law guarantees the free provision of services within the internal market, and national restrictions must respect these boundaries. This creates a structural tension between what states must do and what European rules allow them to do that has proved difficult to resolve.

The absence of specific European legislation on short-term rentals has led to a situation in which the Court of Justice of the European Union (CJEU) must draw the lines between what states can and cannot do. Two rulings that have defined the current framework are particularly relevant in this regard: Cali Apartments (2020) and Airbnb Ireland (2019).

A conflict of competences

The fundamental problem lies in the distribution of competences within the European legal system. On the one hand, Article 56 of the Treaty on the Functioning of the European Union (TFEU)—one of the pillars of the Union—guarantees the free movement of services and prohibits unjustified national restrictions. On the other hand, housing policy remains a competence of individual Member States. There is no legal basis that allows the European Union to legislate directly on rentals or access to housing.

In practice, this places Member States in a difficult position. They are called upon to resolve the housing crisis, but the tools at their disposal are limited by rules designed to protect economic freedom in the internal market. Any restrictive measure on short-term rentals must be proportionate, non-discriminatory and justified by overriding reasons of public interest. These criteria—while not impossible to meet—require national authorities to demonstrate, on a case-by-case basis, that a given restriction is both necessary and appropriate.

The Court’s Case Law: Cali Apartments

In the absence of specific European legislation, the Court of Justice has filled the gap by defining the limits within which Member States can intervene. The most significant ruling in this regard is Cali Apartments (2020), which directly addressed the issue of the compatibility of national restrictions on short-term rentals with EU law.

The case concerned a French regulation that required property owners to obtain prior authorization to convert residential apartments into temporary tourist accommodation. In Paris, this regulation was further strengthened: anyone who uses a property for tourism purposes must simultaneously make equivalent residential space available elsewhere.

In this ruling, the Court recognized that short-term tourist rentals fall within the scope of the Services Directive, as they constitute a genuine economic activity. This means they fall within the scope of the European rules on the freedom to provide services. At the same time, the Court affirmed that the housing crisis can constitute an overriding reason of public interest, thus justifying restrictions. However, this is subject to the condition that the measures adopted are proportionate and non-discriminatory. Each measure must be as non-invasive as possible and must demonstrate its genuine necessity to achieve the objective.

The right to housing, moreover, is part of European law. Article 34 of the Charter of Fundamental Rights of the European Union recognizes the right to housing assistance as a tool to combat social exclusion and poverty. This provision does not give citizens the ability to sue their own state directly, but it strengthens the legitimacy of states that choose to intervene to protect access to housing—such as limiting short-term rentals.

Cali Apartments thus confirmed that Member States have the freedom to protect the housing market, but also established the criteria within which this freedom can be exercized: any restriction must pass a proportionality test, which the Court tends to apply rigorously.

The Court’s case law: Airbnb Ireland

A separate issue from the one just addressed concerns digital platforms that operate as intermediaries in the short-term rental market. In this regard, the Airbnb Ireland ruling (2019) had significant consequences.

The dispute arose from an attempt by the French authorities to treat Airbnb as a normal real estate agent, requiring it to comply with the same rules as professional home rentals. The Court, however, rejected this approach. Airbnb, in fact, is not a real estate agency, but an intermediary that connects those offering and seeking accommodation. As such, it falls within the category of information society services, governed by European e-commerce legislation.

This classification is not merely formal: it has concrete legal implications. Digital platforms are not subject to the rules of the country in which they operate, but rather those of the country in which they are registered, as the country of origin principle illustrates. In the case of Airbnb, it is headquartered in Ireland. This means that Irish law primarily governs its activities.

Other Member States therefore face significant obstacles in imposing additional obligations on the platform.

The result is a dual-track system. On the one hand, individual landlords may be subject to stringent local rules. On the other, digital platforms that facilitate and organize such rentals benefit from a more favorable legal framework, essentially determined by the law of the country in which they are established.

In the context of digital platforms, it is also worth mentioning the adoption of the Digital Services Act (Regulation (EU) 2022/2065), which introduces due diligence obligations for online intermediaries and strengthens transparency requirements. While it does not specifically regulate short-term rentals, it reflects a trend toward greater accountability among digital platforms.

Regulatory Fragmentation and Forum Shopping

The most obvious effect of the current legal framework is fragmentation. In the absence of a common European framework, each city has developed its own model: Paris has focused on prior authorizations and compensation obligations, Amsterdam on time limits and voluntary agreements with platforms, and Barcelona on a drastic reduction in the number of available licences.

These differences create a risk: that of so-called regulatory forum shopping. Investors and professional property managers could be incentivized to concentrate their activities in cities with less restrictive regulations, thus shifting the problem without solving it and generating imbalances between local markets.

The 2024 EU regulation on data collection for short-term rentals represents a step forward: platforms will be required to share more detailed information with national authorities, and Member States will be required to develop interoperable registration systems. However, the fundamental issue remains: the lack of common European criteria for how short-term rentals should be regulated within the internal market.

Conclusion

The issue of short-term rentals illustrates a tension that frequently emerges in current European Union law: that between economic freedoms and the social impacts that occur at the local level. Digital platforms—operating on a European and global scale—benefit from the guarantees of the internal market. The consequences of their activities, however, impact neighborhoods and the quality of life of residents in European cities.

So far, the Court of Justice has attempted to balance these conflicting interests, recognizing both the legitimacy of national restrictions and the limits within which they can be imposed. The Cali Apartments and Airbnb Ireland rulings have defined a legal framework, but have not resolved the fundamental differences—in particular, the distinction between the legal status of landlords and that of platforms.

For these reasons, a fundamental question remains open: is it possible to preserve the integrity of the internal market without compromising the ability of European cities to guarantee the right to housing? In the absence of a coordinated legislative response at the European level, the task of balancing these two needs will continue to fall to the Luxembourg courts.