A. The upstream market

Upstream are those markets that are considered to be ‘above’ or ‘before’ other connected markets.Footnote ³² In the platform economy, upstream is the specific digital service offered by a platform to match economic actors – businesses and/or consumers – on a digital marketplace. In the case of short-term rental platforms this consists of matching ‘hosts’ with ‘guests’ on a digital marketplace for short-term accommodation purposes. Adopted in the early days of the internet to stimulate (cross-border) electronic commerce and the development of the internet more broadly, the E-Commerce Directive – now updated by the Digital Services ActFootnote ³³ – has been the main legal instrument covering such digital services in the EU.

Before online platforms might be able to benefit from the favourable provisions of the E-Commerce Directive and the DSA, their activities must first of all classify as so-called ‘information society services’. These are defined as services that are normally provided for remuneration, at a distance, by electronic means and at the individual request of a recipient of services.Footnote ³⁴ While online activities such as facilitating relations between buyers and sellers fall under the Directive,Footnote ³⁵ subsequent offline activities like the delivery of goods and services do not.Footnote ³⁶ Since Asociación Profesional Elite Taxi, it is no longer self-evident that online platforms are covered by the E-Commerce Directive. In this case, the ECJ argued that Uber could not be qualified as a provider of information society services because of its active role with regard to the content and the performance of the transportation contracts that are concluded via Uber’s online booking application.Footnote ³⁷ Instead, the Court concluded that the online intermediary service forms an integral part of the overall service provision of Uber whose main component is a transport service.Footnote ³⁸ Two years later, the Court drew the opposite conclusion with respect to Airbnb, arguing that Airbnb’s activities consist of online intermediation rather than offering accommodation services as such.Footnote ³⁹ As a result, Airbnb could rely on the principles related to the freedom to provide information society services under the E-Commerce Directive.Footnote ⁴⁰

There are a number of substantive e-commerce rules protecting platforms in the upstream market. First, the E-Commerce Directive requires Member States to make it easy to establish and operate online service providers on their territory.Footnote ⁴¹ Second, so-called ‘safe harbour’ clauses seek to encourage enterprises to develop the internet by exempting online intermediaries from liability for unlawful information that is transmitted or stored by third parties via their networks or servers.Footnote ⁴² Service providers only qualify for this exemption when they play a neutral, merely technical and passive role towards the hosted content and when they remove illegal content as soon as possible when they become aware of the illegal nature.Footnote ⁴³ A third important feature is that Member States cannot expect platforms to monitor all the content they transmit or store in active search for illegal activities. Imposing such a ‘general monitoring obligation’ is prohibited.Footnote ⁴⁴ National administrative and judicial authorities can therefore issue orders to remove, detect or prevent specific items of illegal information.Footnote ⁴⁵ For example, a municipality can order the removal of content advertising accommodation that does not comply with local regulations or request information about this advertisement. It is a matter of some debate, however, whether administrative authorities can impose specific monitoring obligations on platforms. In Glawischnig-Piesczek, issued before the adoption of the DSA, the Court made clear that requests for the removal of content that is identical or equivalent to the illegal content can be permissible as long as these requests do not impose an ‘excessive obligation’ on the platforms with the help of machine tools.Footnote ⁴⁶ Such an understanding offers some room for municipalities to request, for example, the removal of all advertisements for accommodation that do not show a registration number when this is required under local laws.Footnote ⁴⁷

In addition to these substantive rules, the E-Commerce Directive also seeks to guarantee the free movement of information society services. This is done with two principles: home state control and mutual recognition.Footnote ⁴⁸ The principle of home state control means that online platforms like Airbnb are subjected to the law of the Member State of establishment – in casu Ireland – and that this Member State is responsible for their regulation and supervision.Footnote ⁴⁹ Regulation and supervision ‘at the source of the activity’ is supposed to ensure an effective protection of public interest objectives ‘for all Community citizens’.Footnote ⁵⁰ The principle of mutual recognition subsequently means that Member States of destination ‘may not […] restrict the freedom to provide information society services from another Member State’.Footnote ⁵¹ It is clear that this system – underpinned by particular ideas of mutual trust – implies a significant loss of control for Member States of destination. As the Parisian public prosecutor found out in Airbnb Ireland, it could not require Airbnb to hold a professional license like a French law from 1970 required of French real estate agents: as a provider of information society services established in Ireland, Airbnb fell in principle under Irish law.Footnote ⁵² Theoretically however, there is still a way for the Member State of destination, in casu France, to impose measures on online platforms established elsewhere in the EU. First, such measures may only be taken against ‘a given information society service’Footnote ⁵³ and can only be justified on grounds of public policy, the protection of public health, public security or the protection of consumers.Footnote ⁵⁴ Secondly, Member States of destination should give the Member State of establishment the opportunity to take adequate measures and notify the European Commission of its intention to take those measures unless there is a case of urgency.Footnote ⁵⁵ It was mostly for procedural reasons that the Court found that Airbnb was shielded by the E-Commerce Directive, emphasising France’s failure to notify this law in accordance with this Directive and thereby encroaching on the supervisory competences of the Commission and the Member State of establishment.Footnote ⁵⁶ So far, however, the Court has not ruled specifically on the compatibility of restrictions that are duly notified and there is considerable uncertainty as to the meaning of public policy and the range of public interest justifications the Court might actually accept when it is asked.Footnote ⁵⁷ The experience of this legal uncertainty and resulting chilling effect this created on the part of local governments will be demonstrated in section 4.

B. The downstream market

Downstream are those markets that come ‘below’ or ‘after’ a connected market. In the context of the platform-based services economy, the downstream market refers to the underlying services that are offered via online platforms in their ‘real world’ economic and social context.Footnote ⁵⁸ The downstream services offered via Airbnb consist of the actual renting out of properties to tourists or other short-term visitors by natural persons or businesses. Particularly relevant for downstream service providers is the Services Directive, which essentially restrains and conditions the regulation of services against discriminatory, arbitrary and disproportionate interference by Member State authorities.Footnote ⁵⁹

Whether downstream services are actually covered by the Services Directive largely depends on the impressive list of areas excluded from the scope of the Directive.Footnote ⁶⁰ Since transportation services are excluded, the Court considered the Services Directive not applicable to Uber.Footnote ⁶¹ By contrast, the Court ruled in Cali Apartments that short-term rental services, whether on a professional or non-professional basis, are covered by the Services Directive.Footnote ⁶²

Like the E-Commerce Directive, the Services Directive combines substantive harmonisation (eg chapter V) with specific free movement rules to facilitate the freedom of establishment for service providers and the free movement of services (eg chapter IV). Since Visser Vastgoed (2017),Footnote ⁶³ it is generally understood that its rules on the establishment of service providers (chapter III) apply to both domestic and foreign service providers.Footnote ⁶⁴ This is rather significant as it means that any national resident or company seeking to offer (new) services in a Member State territory – ie renting out homes via online platforms – can invoke these rules against the national or local authorities without having to show the ‘cross-border element’ that normally triggers free movement law.Footnote ⁶⁵ Particularly relevant are the constraints on the use of prior authorisation schemes for service-providers: both the scheme as a whole (Article 9) and the specific conditions for granting individual authorisations (Article 10) should be non-discriminatory, justified by an overriding reason relating to the public interest and meet the proportionality test. Notice here that the Services Directive offers Member States more room than the E-Commerce Directive to justify interferences as they can basically invoke any ‘overriding reason relating to the public interest’.Footnote ⁶⁶

It was only in 2020 that the Court of Justice had the chance to interpret the Services Directive in relation to Airbnb. In Cali Apartments, two owners of studio apartments had been ordered to pay fines to the City of Paris for renting out their apartments via Airbnb in violation of municipal rules. For the repeated short-term letting of furnished accommodation, the City of Paris required a prior authorisation which could be made subject to a so-called ‘offset requirement’, an obligation to convert non-residential premises – preferably in the same district – into housing in order to maintain long-term (rental) housing stock for residents.Footnote ⁶⁷ This offset requirement was made possible by the French Construction and Housing Code, which allowed municipal councils to set the conditions for granting authorisations and determining offset requirements ‘by quartier (neighbourhood) and, where appropriate, by district, in the light of social diversity objectives, according to, inter alia, the characteristics of the markets for residential premises and the need to avoid exacerbating the housing shortage.’Footnote ⁶⁸ Focussing first on the Parisian authorisation scheme for short-term letting as a whole, the Court ruled that this scheme could be justified by an overriding reason relating to the public interest.Footnote ⁶⁹ It thereby recognised not only such public interests as the urban environment and social policy,Footnote ⁷⁰ but also public housing policy, especially in situations of structural housing shortages and high population density.Footnote ⁷¹ The French government and the City of Paris were subsequently able to convince the Court on the basis of evidence that the short-term rental market had a significant inflationary effect on general rent levels and demonstrate the need to operate an a priori authorisation scheme for short-term rentals in densely populated municipalities.Footnote ⁷² Moving on to the contested specific condition for granting individual authorisations, the Court accepted the offset requirement as a ‘suitable instrument for pursuing the objectives of socially diverse housing on its territory, a sufficient supply of housing units, and maintaining rents at an affordable level’.Footnote ⁷³ In terms of proportionality, the Court seemed particularly charmed by the delegation of decision-making power to the municipalities, which have ‘particular knowledge’Footnote ⁷⁴ to assess – on the basis of objective evidence – whether an offset requirement is an effective response to a shortage of affordable residential housing at the level of the municipality, district or even neighbourhood.Footnote ⁷⁵

Even though the Services Directive offers urban governments more leeway than the E-Commerce Directive, it is clear that the rules on authorisation schemes shape and limit their available policy options to regulate the downstream market of the platform economy. In the case of short-term rental services, Member States are required to design and operate authorisation schemes that are justified by clearly identifiable public interests and use regulatory instruments that are effective responses to (local) needs, as substantiated by objective evidence. As has been rightly pointed out by others analysing the Court’s approach to housing policy, this proportionality test is not a reciprocal one: the freedom of property owners to provide a given service – renting out properties to temporary visitors – is presented as the status quo while public interference with this freedom in pursuit of social objectives faces higher evidentiary and proportionality burdens.Footnote ⁷⁶ What the Court also does in Cali Apartments however, is solidifying and widening the ‘permissible corridor of proportionate outcomes’Footnote ⁷⁷ within which (local) governments can address local challenges by portraying specific and diverse visions of the city: as a place of social diversity with sufficient affordable housing for the less well-off,Footnote ⁷⁸ as having a viable centre without vacant shops,Footnote ⁷⁹ and as a specific model of human coexistence that guarantees accessibility and protects the environment.Footnote ⁸⁰ In section 4 we will see how this helped the city of Amsterdam and the Dutch government to defend strict municipal rules on short-term letting by depicting an image of an urban environment that offers sufficient housing, a high quality of life and protection against the nuisances of ‘over-tourism’.

A. The structured conflict: local government and platform actors

The ‘real-world’ effects of short-term renting services are experienced most intensely at the local level – that of the city, neighbourhood, street or even apartment building. It is therefore no surprise that cities have globally taken the lead in politicising and addressing the negative consequences of this sector of the platform economy.Footnote ⁸¹ It is by exercising their decentralised powers in areas such as urban planning, (social) housing and economic licensing that local governments hope to protect their cities against overtourism, shortages in affordable housing and ‘unliveable’ neighbourhoods.Footnote ⁸² The policies adopted by local governments vary greatly across the EU.Footnote ⁸³ By now, most cities affected by short-term renting require ‘hosts’ to obtain registration numbers and an increasing number of cities – including Amsterdam, Barcelona and Berlin – require prior authorisation in the form of permits. Conditions attached to short-term renting vary greatly but often include minimum quality and safety standards and restrictions on the number of nights properties can be rented. More recently, cities like Vienna, Florence and Amsterdam introduced spatial restrictions such as quotas or outright bans in certain areas.Footnote ⁸⁴ At the moment of writing, Barcelona has announced a city-wide ban on short-term renting by 2028.Footnote ⁸⁵

Private actors in the downstream market contest these requirements and limitations. This group includes individual ‘hosts’ renting out (parts) of their property but also professional business actorsFootnote ⁸⁶ and collective interest groups – often mobilised by Airbnb itself – who coordinate advocacy for favourable regulation.Footnote ⁸⁷ As we have seen in Cali Apartments, these downstream actors can rely on the Services Directive, which frames short-term rental rules as restrictions to the freedom to provide services. When mobilised, EU law might therefore guide a transformation of the regulatory status quo of life in the city: short-term rental services are liberalised economic activities unless urban governments are able to justify and defend the proportionality of regulation under EU law.

A larger problem for urban governments is the fact that they need the cooperation of online platforms if they want to enforce their ‘downstream’ rules effectively.Footnote ⁸⁸ Upstream, the platform economy has come to be dominated by one or several multinational corporations that have grown into gatekeepers for the underlying services.Footnote ⁸⁹ This gatekeeping position is not only problematic for its users and potential competitors, but also for public authorities since the platforms possess the entire (online) infrastructure, the data of their users, their economic transactions, and the means to block access to the underlying market. However, the legal dogmas underlying the E-Commerce Directive (in combination with privacy regulation) strengthen the already strong bargaining power of platforms claiming that they cannot be made responsible for the enforcement of local rules or be obliged to share the necessary data. While some cities have managed a degree of cooperation from the platforms, cities are often left with slow, costly and obsolete methods of enforcement and data gathering.Footnote ⁹⁰ The ‘untouchability’ of platforms in the upstream market has therefore unmistakable regulatory consequences beyond the internet alone as it also makes it difficult – if not impossible – for urban governments to exercise their competences and find effective policy solutions in the downstream market, even when those downstream policies are in line with EU law.

Hence a complex picture emerges: while the democratic onus of reacting to the public ‘real-world’ challenges of the rapid growth of short-term rental services falls on urban governments, their problem-solving authority is critically limited for reasons of EU legal structure and the economic power of platforms to mobilise the law.Footnote ⁹¹ This is further complicated by the fact that – despite the constitutional promise of subsidiarity in the Treaties – cities only occupy a marginal position in the EU’s legislative, administrative and judicial space.Footnote ⁹² Central governments remain uniquely competent to conduct the necessary formal relations and mediate their interests within the existing legal framework.Footnote ⁹³ A case in point is the E-Commerce Directive, which attributes central governments with the duty to notify new measures for online service providers to the Commission and other Member States.Footnote ⁹⁴ This dependence adds another barrier for urban governments as they have to ensure cooperation from their central governments, which might have different interests or political positions.Footnote ⁹⁵

B. ‘Untouchable’ platforms: regulatory chill and its effects

A particularly useful concept to explain the behaviour of urban governments within the context of the European platform-mediated services economy is that of regulatory chill. Following scholars of international trade and investment law,Footnote ⁹⁶ we can speak of regulatory chill when public authorities are deterred from regulating socially desirable areas for fear of litigation and compensation claims, resulting in delays in regulatory action, as well as modification or abandonment of a particular course of regulatory action altogether.Footnote ⁹⁷ For the purpose of this article, regulatory chill is therefore conceptualised as a specific instance of perceived law-abiding behaviour by public authorities, namely inaction – in the sense of not (completely) pursuing the desired course of regulatory action – in response to broad, unclear or ambiguous legal provisions or judgements that can be mobilised by private actors. In case of the platform-mediated services economy, chilling effects mostly manifest themselves in the ‘upstream’ market as public authorities refrain from imposing obligations on online platforms in light of uncertainties around the E-Commerce Directive.Footnote ⁹⁸ The seemingly ‘untouchable’ nature of platforms in the upstream market creates (or reinforces) three simultaneous knock-on effects.

First, the ‘untouchability’ of platforms triggers a crucial dynamic in terms of policy-making. Chilled from directing coercive action at the platforms, an urban government might decide to target the downstream market by shifting the burden of regulation and compliance towards the providers of short-term rental services. This is typically done with ever more restrictive authorisation schemes and a growing commitment of resources to alternative but cumbersome enforcement measures like onsite inspections, mystery guests and webscraping. This scramble for policy solutions in the downstream market is likely to result in regulatory fragmentation along national and local lines with variation from city to city in the internal market.Footnote ⁹⁹ Rather than deregulation resulting from liberal free movement rules, we can therefore also expect the opposite: an intensification of regulation and enforcement towards the ‘actual’ market of service-providers, to the clear frustration of these professional rental companies and non-professional private hosts.Footnote ¹⁰⁰ The Cali Apartments case, in other words, was the inevitable corollary of Airbnb Ireland.

A second effect can be witnessed in the sphere of governance. Chilled from following the path of coercion by means of public law, an urban government might have to resort to the option of voluntary cooperation with the platforms. In practice, we can therefore see urban governments enter into negotiations with the platforms whereby the platforms mobilise their practical power to enforce local rules or share data as a bargaining chip. This enables a corporation like Airbnb to position itself as an equal and responsible ‘partner’ of local governments while lamenting the ‘patchwork of cities’ regulations’ that it faces, trying to persuade cities to adopt ‘model legislation’ that is transferable from one city to the other.Footnote ¹⁰¹ The legal ‘untouchability’ of platforms under the E-Commerce Directive therefore reinforces horizontal modes of governance in the form of ‘public-private’ partnershipsFootnote ¹⁰² and the advance of corporate power in urban governance in policy areas as housing, tourism and urban planning.Footnote ¹⁰³

A third effect manifests itself in the sphere of political communication. Regulatory chill might trigger a series of ‘blame games’, whereby (urban) authorities try to shift blame to other levels of government within the complex and multi-level system of the European Union.Footnote ¹⁰⁴ Local governments blame central governments and central governments shift that blame to ‘Brussels’ or ‘Luxembourg’, trying to convince local audiences – often via mass media – about their inability to act under EU law. Particularly telling is the press release at the start of this article, where a coalition of cities sketches an image of EU law as offering ‘carte blanche’ to internet giants and undermining the capacity of cities to protect residents’ needs in terms of affordable housing, liveability and ‘touristification’ of their neighbourhoods.Footnote ¹⁰⁵ Political communication of this sort ‘localises’ abstract EU internal market rules and shapes the conflict as not only one between the city and online platforms but also between the city and the European Union, (negatively) influencing citizens’ ‘lived experience’ of EU integration.Footnote ¹⁰⁶ There is also another side to this however: by directly addressing the Court – and asking support from the European Parliament and the European CommissionFootnote ¹⁰⁷ – local governments reconfigure the public imagination of the scale where solutions are to be found for their local problems, creating legitimacy for further integration and re-regulation of the platform economy at EU level.

C. Overcoming regulatory chill, or: the drive for European (legal) integration

Constrained by the liberal and uncertain EU norms and faced with powerful transnationally operating platforms, cities are required to overcome the situation of regulatory chill and actively influence the process of European legal integration. Cities have two venues at their disposal: assertively engaging the EU’s judicial system and/or actively lobbying the EU’s multi-level political system.

A first way for cities to overcome regulatory chill is by simply acting and accepting the risk of litigation within the EU’s judicial system that comprises both domestic courts and the European Court of Justice. Taking this step in the face of an economically powerful and transnationally operating ‘repeat player’ (like Airbnb) in the upstream market and many potential litigants in the downstream market requires a high degree of political capital and state capacity. However, the case of the short-term rental market suggests that urban governments are able to fend against the liberalising tendencies of the internal market if they succeed in convincing judges of the spatial and (re)distributive implications of the platform-mediated services by emphasising local concerns and enforcement problems. The preliminary reference system subsequently allows the ECJ to integrate local interests, objectives and norms into EU law, thereby (re)drawing the contours of the EU’s economic freedoms and the kind of public interests justifying their limits.Footnote ¹⁰⁸ This dynamic is clearly visible in the Court’s endorsement of the Parisian rules in Cali Apartments.Footnote ¹⁰⁹ The way in which Paris was able to limit the economic liberties of property owners under the Services Directive by portraying its city and neighbourhoods as places in need of social diversity and sufficient affordable housing for the less well-off, improved the chances of other cities to justify their desired policies in light of EU law and would later demarcate the scope of harmonisation at EU level. Hence the short-term rental market confirms the dynamic highlighted by Finck, that local fragmentation can amplify interlevel and transnational dialogue.Footnote ¹¹⁰

A second strategy for cities is to lobby for re-regulation at the European level in order to compensate for the loss of problem-solving capacity at the local level. Given the many veto points of EU legislation – and the marginal formal role of cities in the EU’s political system – the outcome of positive integration is not a sinecure.Footnote ¹¹¹ Nonetheless, it can be argued that it is precisely the upstream/downstream dynamics triggered by the structure of EU internal market law that explains why re-regulation at EU level is a likely outcome with respect to the short-term rental market. First, the ‘untouchability’ of platforms made the ‘Airbnb issue’ such a salient, focussed and outstanding local issue of European policy that a core of cities could effectively mobilise their political legitimacy within the umbrella organisation ‘Eurocities’ to influence the EU institutions.Footnote ¹¹² Secondly, the economic actors potentially benefiting from the status quo do not strongly oppose re-regulation. In fact, a platform like Airbnb heavily dislikes the fragmentation of local rules and therefore sees ‘block-wide’ harmonisation as an opportunity to standardise and potentially liberalise short-term rental markets with the European Commission as a watchdog.Footnote ¹¹³ The providers of short-term rental services (and their business associates) also tend to be in favour of EU rules as they hope that by increasing the responsibility of platforms they will be relieved from the ‘multiplication’ of restrictive rules they experience at the local level.Footnote ¹¹⁴ Section 5 describes how the combination of political legitimacy from cities and regulatory fragmentation affecting economic actors in the much desired Digital Single Market fostered an institutional consensus and enabled the adoption of the Short-Term Rental Regulation.

A. Welcoming Airbnb: regulatory chill and voluntary cooperation

Respondents describe Amsterdam’s attitude towards the emergence of short-term rental platforms as welcomingFootnote ¹²¹ : holiday rental would suit the character of Amsterdam as a hospitable city, result in a better allocation of housing stock and stimulate tourism and the local economy.Footnote ¹²² In 2014, the government adopted a number of rules to counter the risks associated with the new phenomenon, particularly those related to safety, nuisance, conversion of residential property and taxation.Footnote ¹²³ Hosts complying with these rules were exempted from the requirement to request formal permission to convert residential property into tourist accommodation. See box 1 below for an overview of the rules.

As becomes apparent from this list, all of the rules were targeted at the hosts in the downstream market and not at the online platforms in the upstream market. In order to make sure that short-term rental policies would hold before courts, most of the rules, especially the 60-night limit, were cautious interpretations of national framework laws on housing (Huisvestingswet and Woningwet) and zoning (Wet Algemene Bepalingen Omgevingsrecht). Residencies found to be rented in violation of the short-term rental rules were classified as hotels and their owners found to be illegally withdrawing residencies from the housing stock and breaching the municipal zoning plan. While enforcement should have taken place through a combination of administrative fines, penalty payments and, in an ultimate case, enforced closure,Footnote ¹²⁴ there was actually little enforcement in 2014 and 2015.Footnote ¹²⁵

From the start, Amsterdam understood that the involvement of platforms in the upstream market was crucial for the effective enforcement of its short-term rental policy: accommodation platforms like Airbnb possess essential information about the number, frequency and exact addresses of the residencies that are advertised and such information is not visible to the visitors of the website. However, a wide variety of evidence demonstrates that the uncertainties around the interpretation of the E-Commerce Directive and its marginal role as a subnational actor in the EU’s administrative space led to serious chilling effects on the city. Airbnb had taken the position that as a digital intermediary service based in Ireland, it was not bound by the municipal rules and all of its cooperation was completely voluntary. According to Airbnb, enforcement was a public task for the local authorities.Footnote ¹²⁶ This position was broadly accepted by Amsterdam city officials, who deemed Airbnb an ‘intermediary’ under the E-Commerce Directive.Footnote ¹²⁷ In the words of the responsible deputy mayor: ‘The E-Commerce rules were in the way. All the time I heard: “You cannot force a platform”.’ Legal officials of the city acknowledge to have never seriously taken the step to impose obligations on Airbnb and other platforms or hold them liable for the violations of municipal rules on short-term rentals that took place via its platform. They explain how, from their perspective, merely ‘theoretical options’ under the E-Commerce Directive were not the same as ‘practical enforcement solutions’ and emphasise that the city is not an actor in the European Union: a notification, in accordance with the E-Commerce Directive, would have to be filed to the European Commission via the central government, which was clearly hesitant to do so.Footnote ¹²⁸

It was largely because of a perceived lack of legal options that the city government chose the path of collaboration with the platforms.Footnote ¹²⁹ Initially, this took the form of a ‘Memorandum of Understanding’ with Airbnb in 2014, which was celebrated as a ‘unique deal’ by both Airbnb and the responsible deputy mayor.Footnote ¹³⁰ Airbnb would inform ‘hosts’ (and ‘guests’) about municipal regulations, undertake actions to stimulate good behaviour by guests and collect and transfer tourist taxation by means of a separate advance tax ruling agreement.Footnote ¹³¹ In the following years, e-mail correspondence between city officials and Airbnb shows close – at times even amicable – relations whereby both parties seem invested in convincing ‘the outside world’ that their cooperation should not be taken for granted and was actually reaping results.Footnote ¹³² However, the negotiation position of Airbnb remained clear: unless there were specific requests, it was not willing to share data of individual users and the company was of a ‘principled opinion’ that it could not act as an ‘enforcer’ of local rules, thereby referring to the ‘general monitoring’ prohibition under the E-Commerce Directive.Footnote ¹³³ After lengthy negotiations, a second Memorandum of Understanding was concluded in November 2016. Airbnb took the ‘big step’ towards ‘self-regulation’Footnote ¹³⁴ by assisting the municipality in achieving their ‘joint goals’, amongst others by adding a counter to the website tracking the number of nights and by pledging to use automated systems to check ‘with sound regularity’ if users exceeded the maximum number of 60 nights.Footnote ¹³⁵

Although cooperation went relatively smooth initially,Footnote ¹³⁶ the voluntary nature of the arrangements with the platforms posed serious limits to the effective enforcement of Amsterdam’s short-term rental policies. Tourist tax was conveniently collected via lump-sum contributions by the platforms but the platforms did not provide information at the individual taxpayer level for reasons of privacy law.Footnote ¹³⁷ Even more problematic was the platforms’ refusal to share information about their individual users and listings. This left the city with laborious and slow enforcement alternatives as it could only rely on notifications by residents reporting the presence of tourists, nuisance or other suspicions about illegal holiday rentals as a source for information about illegal rentals.Footnote ¹³⁸ Platforms would only deliver information on specific addresses or take down advertisements for illegal residencies after explicit and legally grounded requests from the municipalities.Footnote ¹³⁹

B. Taming the hosts: cracking down the downstream market

After a swing in public mood against over-tourism in the city, public debate about short-term rentals intensified in 2016. That year, the city council urged the government to explore options for new measures and enforcement instruments to reduce the negative side-effects of short-term rentals in the city. Believing in the ‘untouchability’ of the online platforms, Amsterdam decided to focus its attention at the hosts and introduced a couple of further restrictions in the downstream market (see box 2 for an overview).Footnote ¹⁴⁰ First, the municipality structurally allocated more resources to the enforcement of housing fraud, introducing such techniques as scraping, permanent hotlines and mystery guests.Footnote ¹⁴¹ Secondly, on 1 October 2017, the municipality introduced a notification duty. From now on, hosts would be required to electronically notify the municipality each time before renting out accommodation.Footnote ¹⁴² Thirdly, through January 2019, Amsterdam reduced the yearly limit from 60 to 30 nights. While the city government had been wanting to reduce the night limitation for a long time, it had considered this move to be legally risky and expected national judges to find this in violation of the national Housing Act.Footnote ¹⁴³ This expectation turned out to be wrong: late 2017, the Amsterdam district court ruled (as later confirmed by the Council of State) that the very act of renting out residential property to tourists – ie regardless of its duration or frequency – already meant a violation of the Housing Act.Footnote ¹⁴⁴ Having obtained legal clarity, Amsterdam could announce the introduction of the strictest night limitation in Europe at the time.Footnote ¹⁴⁵

The reduction of the yearly limit to 30 nights caused an impasse in the cooperation with the online platforms. Memorandums of Understanding – between Airbnb and later Booking – stayed in force until 1 January 2019, but would not be extended afterwards. While Amsterdam only wanted to continue cooperation when the platforms were willing to enforce the 30-night limitation, the platforms first wanted to test its legality and proportionality under EU rules.Footnote ¹⁴⁶ In its reply to the Amsterdam Court of Auditors, Airbnb argued that the 30-night limitation is in violation of EU law and refers to a formal complaint filed to the European Commission.Footnote ¹⁴⁷ This is probably a reference to the complaint submitted to the Commission by a local interest group of bed-and-breakfast owners and other Airbnb hosts (Amsterdam Gastvrij) in February 2019,Footnote ¹⁴⁸ which argues that some of Amsterdam’s short-term rental rules – including the 30-night limitation – are unjustified and disproportionate restrictions under the Services Directives and the right of property as contained in Article 17 of the EU Charter of Fundamental Rights.Footnote ¹⁴⁹

After the breakdown in cooperation with the platforms, Amsterdam decided to intensify its own regulatory and enforcement measures.Footnote ¹⁵⁰ Important was the introduction of a permit system in July 2020. The introduction of permits was made necessary by a rather unexpected and embarrassingFootnote ¹⁵¹ judgement from the Council of State in January 2020.Footnote ¹⁵² The Council ruled that the municipality of Amsterdam had never been competent under the national Housing Act to exempt owners from the obligation to obtain a permit when they want to let their properties to tourists. According to the judges, such usage of residential property served a different purpose than permanent residence and therefore always required a permit from the city government.Footnote ¹⁵³ The judgement therefore meant that Amsterdam had to change its municipal housing bylaws and introduce a permit system if it wanted to allow for and regulate short-term rentals.Footnote ¹⁵⁴ Doing so, the municipality made the deliberate decision to impose the highest possible fines (€8,700 -) on hosts who failed to obtain a permit.Footnote ¹⁵⁵ According to the deputy mayor at the time, this was seen as the only way to genuinely dissuade the growing group of professional businesses running (essentially) illegal hotels.Footnote ¹⁵⁶ Later, when these businesses had left the market and the fines wound up causing disproportionate outcomes for non-professional hosts for relatively small mistakes, the city government decided to lower the fines for some violations.Footnote ¹⁵⁷ Most recently, the Council of State ruled that the city council should reconsider its entire fining policy on short-term renting for its lack of differentiation and, hence, proportionality.Footnote ¹⁵⁸

Not long after announcing the permit system, the city government also took the decision that it would not issue short-term rental permits for three neighbourhoods in the historical city centre.Footnote ¹⁵⁹ This ‘Airbnb ban’ attracted world-wide media attention and an agitated response by Airbnb, which claimed to be ‘deeply concerned the proposals are illegal and violate the basic rights of local residents’.Footnote ¹⁶⁰ The government thought differently: banning short-term rentals would protect those local residents by restoring the disrupted balance between residential living and tourism. With explicit reference to the Services Directive, the decision not to grant permits in those neighbourhoods was justified as a measure of ‘last resort’ to protect their leefbaarheid (‘liveability’) after researching the impact of tourism in all of Amsterdam’s 99 neighbourhoods.Footnote ¹⁶¹ In three neighbourhoods, tourism had deteriorated to such an extent that the government wanted to protect its residents against the bustle and nuisance caused by tourism in their direct living space – ie in the hallways, the gardens and on the balconies.Footnote ¹⁶² The ‘Airbnb ban’ turned out to be short-lived after interest groups successfully litigated against it before the Amsterdam District Court in March 2021.Footnote ¹⁶³ In the appeal case before the Council of State in June 2023, their mobilisation of EU law would prove decisive.Footnote ¹⁶⁴ In contrast to its earlier judgements, the Council now explicitly treated short-term renting as a form of service-provision covered by the Services Directive and therefore evaluated the conditions attached to the granting of permits as restrictions to the freedom to provide services. While the Council accepted that the protection of the urban environment could justify a complete prohibition of short-term renting in certain neighbourhoods, it found the measure disproportionate. In the eyes of the judges, the municipality had not seriously considered less restrictive measures like quotas and had not awaited the effects of the reduction of the night limitation to 30 days before taking such a ‘far-reaching measure’.Footnote ¹⁶⁵ Long before the judgement however, the city government had already decided not to push the limits of EU law any longer and withdraw plans for a reintroduction, to the disappointment of critical city council members who argued that much more was possible under the Services Directive.Footnote ¹⁶⁶

Concludingly, we observe a double and somewhat paradoxical development. In terms of policy and enforcement, Amsterdam changed its approach to short-term rentals from rather liberal to a permit-based system with strict conditions, costly enforcement practices and high fines. The evidence quite convincingly suggests that the ‘untouchability’ of platforms in the upstream market reinforced this multiplication of restrictive rules in the downstream market. This, in turn, increasingly forced Amsterdam to justify and defend the proportionality of its policies on the basis of a ‘liveable city’ against local litigants under the Services Directive, only running against its limits with the ‘Airbnb-ban’. However, the consecutive judgements of the Council of State also reveal something much more profound, that is to say, a complete reversal of the local status quo as regards the legal status of short-term renting. The activity of short-term renting changed from plain illegal usage of residential property under the national Housing Act to an economic activity governed by the Services Directive.Footnote ¹⁶⁷ EU law therefore aided a transformation of short-term renting from an illegitimate but somehow tolerated use of housing space to a formalised market activity insulated from (too much) democratic interference by such liberal principles as proportionality.

C. Taming Airbnb: overcoming regulatory chill in the upstream market

As shown above, Amsterdam’s reversal in attitude towards Airbnb materialised in the form of strict regulation in the downstream market, exclusively targeting the actual providers of short-term rental services. However, in order to enforce its short-term rules effectively, the city knew very well that it also had to impose obligations on the platforms in the upstream market. When confronted with critical city council members asking why the rules they made did not apply to Airbnb, deputy mayor Ivens claimed to be running against the outer limits of what was believed possible under EU regulation such as the E-Commerce Directive.Footnote ¹⁶⁸ One way to overcome this legal obstacle was to move the central government to action, which was solely competent to change housing legislation and conduct the necessary formal relations within the European Union.

Amsterdam’s lead in a lobbying campaign would move the central government to propose legislative amendments to the Housing Act in 2019.Footnote ¹⁶⁹ The aim of the new rules was to create a clearer legislative framework for short-term rentals and attribute more regulatory and enforcement powers to municipalities. While short-term renting was formally allowed under the new Housing Act, municipalities would be able to require hosts to register their homes, set a night limitation, require hosts to notify every stayover and oblige hosts to obtain a permit against high fines, all depending on the local need to protect the housing stock or the liveability of residential environments.Footnote ¹⁷⁰ However, to the disappointment of Amsterdam and other cities, platforms largely escaped the burden of legislation even though the responsible minister was all too familiar with problem from her time as an deputy mayor in Amsterdam.Footnote ¹⁷¹ Again, chilling effects under EU law appear to have been the most important explanation. While the options for targeting hosts were considered wide-ranging under the Services Directive, the ministry considered that taking a tougher stance towards platforms would be risky in light of the E-Commerce Directive as it required operating in a ‘grey area without jurisprudence’ and also meant notifying the European Commission.Footnote ¹⁷² Hence the publication of the proposal resulted in a heated multi-level blame game, whereby local governors blamed the national government for not taking on the platforms and the minister blamed ‘European directives’ for not being able to do so – a battle that was fought out in the national and local media.Footnote ¹⁷³ Part of the critique, also expressed by national members of parliament (MPs), was the active presence of the platforms at the drafting table of the ministries with around 10 meetings in the runup to the legislative proposal.Footnote ¹⁷⁴

In an interesting turn of events, a rather unusual alliance of MPs managed to pass a range of amendments imposing obligations on platforms nonetheless.Footnote ¹⁷⁵ The MPs, including those of coalition parties, clearly sided with Amsterdam by taking the view that involving platforms was vital for effective regulation.Footnote ¹⁷⁶ The most important amendment considerably improved the effectiveness of enforcement by prohibiting platforms to advertise accommodation without a registration number.Footnote ¹⁷⁷ Another amendment obliged platforms to inform their users about the local short-term rental rules.Footnote ¹⁷⁸ Initially, the minister tried to reassure the MPs about the existing limits of EU law,Footnote ¹⁷⁹ but when realising that the amendments would reach a majority of votes, she gave in and reached a compromise: the law would take force on 1 January 2021 but the provisions targeting the platforms would take force after the notification procedure under the E-Commerce Directive had been followed.Footnote ¹⁸⁰ After the ECJ had rendered its Airbnb Ireland judgement, ministry officials knew that imposing rules on platforms required notifying both the European Commission and Ireland (the ‘home’ Member State of Airbnb and Expedia) and they could only rely on the four derogations listed in Article 3(4) of the E-Commerce Directive.Footnote ¹⁸¹ In a similar way to the city of Bonn in the famous Omega case,Footnote ¹⁸² the Dutch government gave a particular, localised interpretation of the European legal concept of public policy, namely that the large scale use of residential properties to tourists via online platforms seriously affected the liveability and safety in certain urban areas and exacerbated problems related to the supply and affordability of long-term (rental) housing.Footnote ¹⁸³ Perhaps to its surprise, the Dutch government could consider the lengthy and labour-intensive notification procedure (counting 112 pages) to be successfully completed in early 2021 when it did not receive objections from the Commission or other Member States.Footnote ¹⁸⁴

It was only after the silent acceptance of the Commission that the upstream rules of the Housing Act would be put into effect and Amsterdam could require Airbnb and the other platforms to only publish properties with a registration number.Footnote ¹⁸⁵ After Amsterdam announced to start operating a registration system from April 2021, Airbnb announced to ‘voluntarily’ support the city in implementing the system and to remove advertisements without a registration number from 1 October 2021 onwards.Footnote ¹⁸⁶ The effects were profound: the number of advertisements dropped from 18,000 in September to 4,500 in December of 2021.Footnote ¹⁸⁷ In January 2022, Amsterdam formalised the obligations for platforms in its by-laws, prohibiting them from advertising properties in Amsterdam without a registration number and obliging them to inform their users about the local short-term rental rules (see box 3 for an overview).Footnote ¹⁸⁸

To conclude, it took the city of Amsterdam almost eight years to exercise public authority over Airbnb and the other platforms in order to ensure a degree of effective compliance with its short-term rental rules. The city succeeded despite its marginal role as a subnational actor in the EU’s administrative space but this required intensive lobbying efforts and the plain luck of a rather unusual coalition of individual members of parliament to overcome resistance by national government in light of the uncertainties around E-Commerce Directive. It was the vision of liveable city with sufficient affordable housing that gave expression to the local concerns of public policy justifying a derogation from the principles of home state control and mutual recognition under the E-Commerce Directive.

A. Playing Europe

Simultaneous to the push for action at the national level, cities felt forced to lobby for reform at the European level in order to make up for their perceived loss of regulatory autonomy at the local level. Zooming in on Amsterdam we find that it was already in 2016 that deputy mayor Ivens was mandated by the city council to start a lobby with other European cities towards the European Commission and Parliament.Footnote ¹⁸⁹ Part of Amsterdam’s strategy was to form an alliance with other cities who also had to deal with the same European rules.Footnote ¹⁹⁰ The main objective was to gain ‘clarity’ about the European rules applying to the short term rental sector: while all cities had their own set of local rules to protect their residents from the negative consequences of the platform economy, the platforms appeared to receive a ‘free pass’ from Europe, which made the enforcement of their rules impossible.Footnote ¹⁹¹ This only materialised in the course of 2019 in the form of a broad coalition of cities – the so-called ‘European cities alliance on short-term holiday rentals’ – within the umbrella of Eurocities that pushed for legislation on registration and data sharing to better control the activities of platforms and hosts at local level.Footnote ¹⁹²

Convincing the European institutions of the need to regulate the short-term rental platforms was not an easy task given their early enthusiasm for the platform economy. Since 2015, Airbnb had already enjoyed frequent access to the European Commission,Footnote ¹⁹³ which published a guidance in 2016 that wholeheartedly embraced the economic potential of the ‘collaborative economy’ and an ‘opportunity’ to policymakers and legislators in the Member States to ‘reassess’ the justification and proportionality of existing regulation under EU law.Footnote ¹⁹⁴ Building on the guidance, the Commission sent a letter of formal notice to Belgium in 2019, accusing the Brussels region of violating the Services Directive with its short-term rental policies.Footnote ¹⁹⁵ In 2017, the European Parliament adopted a Resolution highlighting short-term renting as ‘an excellent use of resources and under-used space’ and condemning local regulations seeking to ‘restrict the supply of tourist accommodation via the collaborative economy’.Footnote ¹⁹⁶

Towards the end of the decade, we witness a gradual turnaround that can be contributed to pressure for action from the Amsterdam-led alliance of European cities, some Member State governments in the Council, active members of the European Parliament and heightened media attention.Footnote ¹⁹⁷ In a Resolution adopted in 2021, the Parliament strikes a markedly different note, pointing to the negative impact on housing affordability and liveability caused by the short-term rental market and demanding action from the Commission.Footnote ¹⁹⁸ By then, the Council had already invited the European Commission to provide more clarity on short-term rental services, emphasising the need to achieve balanced and sustainable tourism development in the Single Market and address ‘justified concerns in an appropriate manner’.Footnote ¹⁹⁹ When the European Commission started consultations for a new initiative in 2021, it noticed not only a ‘proliferation’ of regulatory and burdensome requirements at local level but also the problematic lack of platform cooperation to achieve the type of local public interest objectives accepted by the Court in Cali Apartments.Footnote ²⁰⁰ A year later, the Commission could report broad support from all ‘stakeholders’ – including public authorities, online platforms and hosts – to harmonise data-sharing obligations and registration schemes across the EU.Footnote ²⁰¹

B. The digital services act

Cities initially placed high hopes in the long-awaited Digital Services Act (‘DSA’), as this Regulation sought to update and amend the E-Commerce Directive to match the development of online platforms and their role in society. In particular, they hoped that the DSA would correct the unworkable home state control principle of the E-Commerce Directive and expand its scope for derogations ‘to safeguard socio-economic and environmental quality in cities’.Footnote ²⁰² In addition, the cities lobbied to update the ‘safe harbour’ provisions in order to prohibit the publication of illegal content and require platforms to share up-to-date and reliable data for the enforcement of short-term rental rules.Footnote ²⁰³ They received political support for these positions from the Dutch government in the Council, which – it is reminded – had just gone through the laborious process of notifying derogations under the E-Commerce Directive to support Amsterdam’s short-term rental rules.Footnote ²⁰⁴

The final version of the DSA – adopted on 5 July 2022 – must have been disappointing for the coalition of European cities.Footnote ²⁰⁵ While recital 12 explicitly mentions ‘the illegal offer of accommodation services’ as an example of what is considered to be illegal content, the DSA does not make the removal of such content much easier compared to the E-Commerce Directive.Footnote ²⁰⁶ Sure, the DSA streamlines specific removal orders and strengthens enforcement cooperation between national authorities, but also leaves the existing free movement rules and safe harbour provisions intact and does not impose data sharing obligations on platforms. In other words, local governments are still left with the task of detecting the ‘illegal content’ and notify the platforms with specific removal orders. The most tangible response from the Commission to this critique has been to point at Article 31, which requires platforms to make ‘traders’ on their platforms ‘traceable;’Footnote ²⁰⁷ the critical question being whether short-term rental providers can always be classified as traders under EU law.Footnote ²⁰⁸

C. The short-term rental regulation

At the end of 2022, the European Commission came with a proposal for a Short-Term Rental Regulation (‘STR Regulation’).Footnote ²⁰⁹ After a relatively quick legislative process, the Regulation was formally adopted on 11 April 2024 even though the rules will only take effect on 20 May 2026.Footnote ²¹⁰ Where the DSA provides ‘horizontal’ rules for providers of information society services, the Commission sees the STR Regulation as ‘sector-specific’ legislation addressing the specific issues related to short-term rental platforms.Footnote ²¹¹ It is evident from its context and measures that the main objective behind the Regulation is to help Member State authorities respond effectively to the rapid growth in short-term rental services and ‘design and implement’ their policies to address the concerns of local communities related to affordable housing and balanced tourism.Footnote ²¹² The legal basis for the Regulation is the internal market competence of Article 114 TFEU, which the legislator justifies by explaining that that the rules are necessary to remove cross-border obstacles for online platforms intermediating short-term rental services and ensure the ‘fair, unambiguous and transparent provision of short-term accommodation rental services within the internal market’.Footnote ²¹³

The regulatory instrument at the heart of the Regulation is a registration system close to the one operated by the city of Amsterdam (Section 4.C). An obligation on behalf of ‘hosts’ to obtain registration numbers for their properties is combined with a de facto obligation on behalf of the platforms to display those registration numbers on their websites and share the relevant data with Member State authorities. In order to achieve this, the Regulation fully harmonises registration procedures for short-term rentals in the European Union, whether established at the national, regional or local level. Articles 4 and 5 respectively stipulate how the registration procedures should operate and what kind of information hosts should provide. While the rapporteur (Greens/EFA) and other progressive MEP’s tried to link the issuing of a registration number to a prior authorisation to actually enter the (local) short-term rental market (eg by means of a permit), liberal and conservative MEP’s favoured the final outcome of a largely free of charge procedure resulting in an automatic and immediate issuing of a registration number.Footnote ²¹⁴ Platforms, in turn, are obliged to design their website in a way that enables hosts to ‘self-declare’ whether their property is located in an area where a registration procedure applies and only allow those hosts to advertise when they provide a registration number.Footnote ²¹⁵ Progressive MEP’s tried to increase the responsibility of platforms by simply prohibiting platforms from advertising properties without a necessary registration number regardless of the self-declaration;Footnote ²¹⁶ liberal and conservative MEPs took the side of Airbnb by arguing that such an obligation would introduce unnecessary burdensome red tape for the platforms and contradict the general monitoring prohibition under the DSA.Footnote ²¹⁷ The final compromise could therefore be seen as a specific monitoring obligation in line with the Glawischnig-Piesczek jurisprudence: platforms have to make ‘reasonable efforts’ to ‘randomly check’ the validity of the self-declarations and registration numbers provided by hosts while taking account of the lists of areas where registration procedures apply as they are communicated by Member State authorities.Footnote ²¹⁸ Finally, it is important to mention the data sharing obligation imposed on platforms. Every month, platforms are supposed to transmit activity data of the properties advertised on their websites for areas where registration procedures exist. This includes the number of nights rented, number of guests hosted, registration number and URL for the listing.Footnote ²¹⁹

Cities do pay a price for the Regulation. This price lies in the fact that if Member State authorities want to ensure platform cooperation under the Regulation, they can no longer operate registration procedures for short-term rental services in the way they see fit but have to do so in the exhaustive way stipulated by the Regulation.Footnote ²²⁰ This form of maximum harmonisation and the objective to make the data systems interoperable under direction of the European CommissionFootnote ²²¹ could be seen as an encroachment on the competences of Member States (and potentially their internal division of competences) at the intersection of housing, urban planning and tourism policies. It is a price most cities are probably willing to pay, however, in exchange for the legal uncertainties that currently persist over the cooperation of online platforms. Not unimportant is the fact that the platform lobby to harmonise the substantive rules on short-term rental services did not succeed.Footnote ²²² After all, the Regulation stresses that Member States remain competent to regulate market access requirements for hosts (such as minimum quality and safety standards or quantitative restrictions) even though it emphasises that these downstream rules need to comply with the proportionality requirements under the Services Directive.Footnote ²²³

Concludingly, the adoption of the STR Regulation can be seen as an illustration of the dynamics and outcome triggered by the upstream/downstream structure of EU internal market law. With it, the EU legislator essentially acknowledges that the downstream enforcement of short-term rental rules is near to impossible without targeting the gatekeeper position of online platforms and that this requires a sector-specific ‘plug-in’ to the E-Commerce Directive (and DSA).Footnote ²²⁴ The Regulation aims to close a gap in upstream enforcement in order to enable public authorities to effectively exercise their competences in the downstream market, which in turn – so the legislator seems to expect – should lead to more ‘proportionate’ short-term rental policies on the ground.Footnote ²²⁵ The effectiveness of this approach – obliging platforms to display registration numbers on their website – was earlier demonstrated in the case of Amsterdam, where this resulted in the removal of 75 per cent of Airbnb listings. The Short-Term Rental Regulation should therefore be seen as a serious attempt at re-regulating a specific sector of the local platform economy at the European level, helping cities to reclaim a degree of regulatory control over their short-term rental markets.