The Economic Impact of Vacation Rentals in Aruba

VACATION RENTAL PROFESSIONALS ARUBA

A brief response to the Vacation Home Rentals and Carrying Capacity Report

The Government of Aruba has enlisted Economisch Bureau Amsterdam to evaluate the economic impact of vacation home rentals (VHR) and propose potential policies. We commend the government for taking the initiative to analyze the economic influence of this sector. As professionals working in this field, we have witnessed its potential and observed its growth as a significant component of Aruba’s tourist industry’s accommodation inventory.

Regrettably, we must express our disappointment with the report, which has several shortcomings. Instead of delving deeply into the economic assessment and consequences of the vacation home rentals sector, the report focuses on a questionable connection between this sector and housing affordability, housing shortages, and overtourism exhibiting unwarranted bias against foreigners. We will limit our response to highlighting five critical shortcomings in the report.

To begin with, the report’s premise is flawed. The assertion that our sector is driving housing prices cannot be derived from the report’s findings. The report lacks a systematic empirical analysis of housing prices, as it fails to assess crucial factors influencing housing prices in Aruba, such as cost of construction materials, import duties, land availability and policies, disposable income, evolving consumer housing preferences (e.g., location, size, lot size), mortgage rates, and the long-term responsiveness of housing construction supply. Therefore, evaluating the factors that drive housing prices necessitates a robust and sophisticated analysis, which is absent in this report.

Even if we were to accept the report’s claim that vacation home rentals are somehow associated with increasing housing prices, the data presented in Table 4 on page 12 does not support this assertion. For instance, one might infer from the report’s claim that vacation homes are responsible for rising prices in areas like Noord, Oranjestad, and Eagle. However, what about Sta Cruz, where the VHR sector only accounts for 1% of the housing stock, or San Nicolas with 2%? Did these two areas not experience housing price increases?

Secondly, the report asserts on page 12 that the negative impacts of vacation home rentals “carry significant weight”. Once again, this claim is made without solid supporting evidence. The sentiment survey conducted by ATA (note: a good initiative, but incorrectly used in this study) involved asking respondents about their concerns and tallying the frequency of those concerns to determine which ones were mentioned most frequently. However, it is important to note that frequency does not imply ranking or significance. This is a fundamental rule in survey design and analysis. The sentiment survey did not include a question asking respondents to assess the weight of positive versus negative aspects. Hence, it is inaccurate the assertion in the report that the negative impacts of vacation home rentals “carry significant weight”.

Thirdly, let us consider the assessment of the economic impact of vacation home rentals. According to the report, the vacation home rental sector provides more rooms than hotels and timeshares, and its economic footprint increased from $71 million in 2019 to $153 million in 2022. However, the figures presented on page 11 regarding the size of the vacation home rental inventory are confusing. Specifically, the figures provided on page 11, fail to convey a clear understanding, and raise doubts about their reliability. The divergence of nearly 800 units, accounting for approximately 23%, between the numbers reported by ATA and the Central Bank of Aruba, which unfortunately does not provide an accessible report, further amplifies these doubts. Such discrepancies warrant scrutiny regarding the accuracy and credibility of this data. The report lacks a comprehensive explanation of the counting procedure, which only adds to the confusion surrounding this matter. It would have been preferable for the consultants to undertake a thorough inventory count themselves, relying on primary data sources, rather than relying on questionable secondary data.

Additionally, on the same page, the consultants made a spending assumption to estimate the value of bookings. However, this assumption was never clearly stated. The combination of the confusing data count and the unclear spending assumption, brings doubt on the stated estimated economic footprint of vacation home rentals: how can one explain a doubling of spending from $71 million to $153 million in just three years? The report remains silent on this critical question.

Fourthly, the policy recommendations presented in the report are a mix of regulations that have been implemented in other countries. In Chapter 2, the consultants discuss various policy practices without sufficiently explaining which ones would be suitable for Aruba and providing the rationale behind them: it is important to consider the specific context when designing and developing policy recommendations.

Moreover, the report is connecting the recommendations to the issue of overtourism without thoroughly discussing whether overtourism exists in Aruba. The concept of overtourism is not only unclear and open to debate in the literature but also highly subjective. What one person may perceive as excessive tourism another may view as beneficial. Mentioning overtourism without considering this subjectivity gives the impression of a bias towards foreigners, which is a dangerous proposition considering Aruba’s economic, social, and cultural ties to the world.

Finally, the in the report the consultants assert that the vacation home rental (VHR) sector is predominantly influenced by foreigners (page 12), while simultaneously stating on the same page that only 11% of the inventory is owned by foreigners. This number contradicts the report’s claim, as it means that 89% of the sector is in the hands of local residents. This substantial majority suggests a significant distribution of benefits to local residents facilitated by the VHR sector; a critical aspect overlooked in the report.

What is truly needed is a systematic and comprehensive study of the vacation home rental sector in Aruba. Unfortunately, this report falls short and fails to serve as a solid foundation for an evidence-based approach. While our organization supports a more deliberate approach to ensuring compliance (through formal registration), quality and safety standards, and enforcing measures to safeguard market efficiency and effectiveness for the benefit of the Aruban community, we are disappointed in the shortcomings of this report.