Amsterdam will tighten its licensing policy for new hotels. Under the new policy, the principle of “no, unless” will apply to the entire city. The development of new hotels in Amsterdam will only be possible in exceptional circumstances. SEO Amsterdam Economics has been commissioned by the Municipality of Amsterdam to study the economic impact of the tightening of its hotel policy. Attention is paid to the impact on the hotel sector and on the substitutes for hotel stays, such as the letting of holiday accommodation through websites like Airbnb.

When this policy takes effect, the prices of Amsterdam hotel rooms will rise after 2020. In a more expensive hotel market, tourists will more frequently choose private holiday rentals as an alternative. This report estimates that this will lead to an increase in the number of privately rented houses of between 1,100 and maximally 6,000, depending on the growth in tourism. This number comes on top of the organic growth of this market segment.

Between 2004 and 2014 the number of tourists visiting Amsterdam increased by 58 percent in total to 6.7 million per year. In response, the number of hotel rooms increased by 45 percent over the last ten years. The growth in the number of rooms is slightly lagging behind the demand for accommodation, resulting in tension in the hotel market and thus in increasing prices. This price increase is noticeable in more recent years in particular.

As per January 2016, 11,334 locations were rented out privately via Airbnb alone. An indicative estimate is that this segment offers approximately 40,000 beds. This equals 62 percent of the number of hotel beds and that’s only part of the private holiday rentals.

When the supply in the hotel market is regulated, as the new policy intends to do, the prices of hotel rooms will increase. Depending on the growth in the number of tourists and the price sensitivity of the demand for accommodation, the upward pressure on prices can be substantial. If hotel rooms become more expensive it is likely that the demand will shift, through substitution, to alternatives such as private holiday rentals via websites like Airbnb. Due to the increase in demand, the prices in this market segment will go up as well.

A scenario analysis was performed to examine the influence of assumptions regarding the price elasticity on this chain of cause and effect. Up until 2020, the supply of hotel rooms in Amsterdam will continue to grow with approximately 6,500 rooms. The effects of the policy adjustment will therefore only be felt after 2020. Only if the increase in the number of overnight stays is higher than the average of the past ten years (4 percent), bottlenecks will be created before 2020. The shortage of rooms after 2020 may reach a level of around 5,900 rooms in 2025. This will provoke price increases that vary with the growth in the demand for accommodation and the price elasticity. This price pressure will make it more appealing to increase the supply of private holiday homes. The scenario analysis calculations show that this increase will potentially be between 1,100 and 5,900 rooms in surplus of the organic growth. This increase can also boost the illegal part of the hotel market and therefore puts more pressure on enforcement and supervision activities. Putting a brake on the supply of hotel rooms will eventually translate into an increase of the market potential for those who rent out accommodation privately.