Europe News

End of the budget city break?

Jessica Morris, special to
Fabrice Dimier | Bloomberg via Getty Images

The sun could be setting on the global sharing economy as city authorities in France and Germany prepare to clamp down on people renting out their houses and apartments to vacationers.

The sharing economy has grown rapidly in recent years as individuals look to arrange short-term rentals of their properties -- the worldwide vacation rental market is worth a reported $85 billion, according to the World Economic Forum. This boom has led to an increasing number of online companies, such as HouseTrip, Wimdu, AirBNB and 9Flats, which put vendors in touch with clients looking to rent an apartment or house for their vacations.

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And it is cities that have moved center stage in the battle between governments and the sharing economy. Concerns center on the effect of privately let holiday apartments on rising rental prices, as well as the incidence of so-called unregulated "illegal hotels" that enable landlords to avoid tax payments.

New York was the first city to clamp down on short-term lets. In 2011, it became illegal to rent out apartments for periods of less than 30 days. This November officials in Berlin passed the first stage in a law to restrict requiring official permission for private short-term lets. Paris is set to follow with officials voting on similar legislation this Tuesday.

The New 'Sharing' Economy

It is a trend that's particularly worrying for sharing companies: Ryan Levitt PR director at HouseTrip told CNBC that 48 percent of the company's private vacation rentals are in cities.

Levitt told CNBC that sharing economy websites are particularly concerned about the Paris vote. "It's even more restrictive than the vote in Berlin." In Paris the law is intended to ban the lease of private vacation apartments unless they are rented out for more than year.

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"On the surface it looks like it's easy. All you need to do is get a certificate from a town hall but in reality there's a catch."

"If you're taking an existing property off of the long-term rental market you have to find a property that's commercial and transform it into a long-term rental property."

He added "no one is going to do that."

(Read more: Sharing economy: 'Greater' Depression in the making?)

Levitt believes that the legislation in both Paris and Berlin is due to the cities' rising rental rates. He said "The rental rates are going up so much that locals can't afford to live there anymore. They feel sites like ours are encouraging people to buy properties and rent them out to tourists rather than residents."

But he believes that both cities have a long-standing tradition of vacation rentals. "In Paris…it's been going for generations."

New York has had laws similar laws in place for two years making short-term lets less than 30 days illegal. Officials are trying to combat unregulated hotels using websites such as HouseTrip to market their services. Concerns over health and safety as well as non-payment of taxes are behind the legislation.

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But according to Levitt "[The regulations in] New York were put in place to combat what they refer to as illegal hotels." And yet the law is so restrictive it "stamps out sharing economy sites such as ours."

Some cities are trying to work with the sharing economy. Levitt told CNBC "Amsterdam has recently hired a sharing economy expert to lookinto these issues. This is a good case of a city that is thinking proactively rather than 'let's just ban it'".

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