Torrevella | iStock
Torrevella | iStock

Tourism on the Costa Blanca (II): What is the real impact of "residential tourism"?

The coast of Alicante is a leader in residential estates occupied mainly by foreigners that developers claim bring in millions, but academics warn of the negative aspects

Travelling along the coast of Alicante means coming across a great many residential estates. Dénia, Xàbia, Calpe, Altea, Alfàs del Pi, Benidorm, Vila-Joiosa, Santa Pola, Torrevieja, Orihuela... are some of the towns that have large concentrations of houses and villas in their municipality. From the middle of the 20th century the decision was made to build near the sea, although it was not until the 1990s that this urban model gathered pace, leaving what for some is an idyllic landscape and what is an aberrant one for others. Real estate developers have sold the concept of “residential tourism” as a boost for local economies. But to what extent has this been the case? And does "residential tourism" really exist?

First, we need to define what we mean by “residential tourism” because there is some debate. The Association of Real Estate Developers of the Province of Alicante (Provia) defines it as choosing to stay in a home that is not a main residence (a second home), which belongs to family or friends, or in a rental home outside the hotel circuit (i.e. not regulated as a tourist apartment).

Residential tourism, "a great marketing success"

Yet, that is not how academics see it. The researcher of the University Institute of Tourism Research of the University of Alicante (UA) and former Director General of Tourism of the Valencian Government, Raquel Huete, says that "the success of real estate developers has been to associate the construction of housing for foreign retirees with the word tourism." "It's a great marketing success," she adds and says that the first to use the term "residential tourism" was a developer on the Costa del Sol, in Málaga. Researcher Francisco Jurdao was extremely critical but at the same time "gave solidity to the concept".

Huete: "The success of real estate developers has been to associate the construction of housing for foreign retirees with the word tourism"

In Huete's view, residential tourism should "strictly" refer to "staying in a residence, not building it." She explains that this "advertising strategy" seeks to "paint tourism development as what is essentially the construction industry and real estate business" and "hide the fact that most of the business initiatives have degraded the value of the tourism product that apparently they want to promote," with such things as "the destruction of the environment" or "the urban saturation of municipalities, massifying their public spaces".

For his part, Professor Tomás Mazón, from the same institute at the UA, admits that the concept is "ambiguous" because "you can't be a tourist and a resident" at the same time, but he adds that "there is no other". He thinks it would be "more appropriate" to call it "second home tourism" because "it describes a person who buys an apartment or a villa and uses it for a few months or a few weeks a year," as well as "retired European citizens who use it mostly in winter".

The economic impact of residential tourism according to developers

To understand the relevance of the sector, it is worth mentioning that Alicante is one of the few provinces where the proportion of overnight stays in regulated and unregulated accommodation is the other way round compared to most places in Spain, according to Provia: overnight stays in private homes, of relatives and friends, and in holiday rentals, account for 76% of the total, with the rest being accommodation in hotels, campsites and tourist apartments and rural guesthouses.

Let's look at the data. The most recent reports are Economic Impact of Residential Tourism of Foreigners in the Province of Alicante (May 2018) by doctor Francisco Llopis Vañó, of the Department of Organisation of Companies of the University of Alicante (UA), and Behavior of Expenditure and Propensity to Be a Residential Tourist on the Costa Blanca (April 2019) by Francisco J. Sarabia‐Sánchez, professor of the Department of Economic and Financial Studies at the Miguel Hernández University of Elche (UMH). Both are backed by the Provia business association.

Let's break it down. The first report reveals that the province of Alicante is the first in Spain in second homes (with 547,397) and is the second (surpassed only by Madrid) with the largest number of citizens from the European Union (with 190,672). In addition, it has a "very dynamic market" in the number of real estate transactions, behind only Madrid and Barcelona. Provia points out that 3.6 billion euros were billed for the sale of homes to foreigners in 2018. In the Alicante ranking of second homes, Torrevieja, Alicante, Orihuela, Benidorm and Santa Pola all come high.

Alicante is the first province in second homes in Spain and the second (surpassed only by Madrid) with the largest number of citizens from the EU

The study calculates the economic impact according to: the purchase of housing by non-resident foreigners, some 136, at an amount of 27.1 million euros in 2016; the nearly 200,000 homes that are put on the market to accommodate this segment of tourism, almost a third of the non-main housing stock in the province, and that generate an expenditure of more than 910 million euros; and acquisitions by second home residents, about 114, making a total of 19.98 million euros.

Temporary residential tourists in Alicante make up 2.7 million (51.3% of whom come to the province and account for 17.4% of this type throughout Spain) and they generated 3.46 billion euros in 2016. In addition to the impact of the 75,500 permanent tourists - closely linked to the attraction of compatriots - estimated at 1.26 billion euros, the total comes to more than 5.74 billion euros in one year. This is equivalent, according to the report, to the impact generated by the manufacturing and construction industry, representing 17.7% of the provincial GDP.

Professor Llopis' study shows that residential tourism generates around 96,945 jobs in the province (5.74% directly linked to the construction sector), without taking into account the indirect jobs. The main activities benefitting are: food and restaurants, with 1.53 billion euros (26.71%); tourist activities, with 865 million (15.06%); international transport, with 865 million (15.06%); housing maintenance, with 729 million (12.69%); and construction of new homes, with 417 million euros (7.26%).

Let's move on to the second report by Professor Sarabia-Sánchez. It explains that residential tourism "is the main reason for coastal urban development from the late nineties to the beginning of the second decade of the 21st century" and adds that it is a type of tourism that "has a strong social impact and that has changed the urban profile and society of many municipalities". According to the figures given, the most common type of accommodation is renting a home (42.8%), followed by home ownership (37.5%) and, finally, free accommodation provided to or shared with family and friends (19.7%).

The Sarabia-Sánchez report warns that residential tourism "has a strong social impact and has changed the urban profile and society of many municipalities"

To focus in on the profile of these tourists, foreigners have their own homes on the coast of Alicante in a larger proportion than Spanish residential tourists, who tend to rent or go to the homes of family and friends. Foreigners also spend far more time: an average of 120 days compared to 23.7 for Spaniards. They are mainly German (44.2%) and British (26.9%). In addition, the study reveals a "high loyalty" of the residential tourist with regard to the Costa Blanca, as only between 12.8% and 19.2% combine staying there with other destinations and close to 80% stay there for their entire holidays.

The Sarabia-Sánchez report shows that the average expenditure per residential tourist per stay in Alicante is 488.1 euros, but this changes a lot depending on the origin: Spanish tourists spend about 149.5 euros, while foreigners spend about 847.1 euros. Most of this is spent on restaurants (38%), followed by food (29%), while further down are things such as clothing (9%) or short trips within the destination (6%). However, a large part of the foreign tourist's expenditure corresponds to the round trip (mainly by plane).

Academics question the economic impact

We only find such detailed data from the developers. Raquel Huete regrets that the academic world does not have the resources to "report real costs" because, moreover, "it is very difficult to quantify them, beyond common sense". She maintains that "the economic impact comes from housing construction" and states that she "dislikes" the fact that "building houses is called tourism". The researcher is interested in calculating costs, as well as benefits: "The costs of unplanned urban planning on the territory and on the population are very high. The economic return of construction is high, but it also has very high costs. They talk about the number of homes that have been sold to foreigners, but what about the maintenance of housing developments? And all the thousands of homes that are there that do not have drinking water, guaranteed drainage or that are on undevelopable land? Who pays the cost of the expropriations?" she asks. For all this, she believes that a good indication to understand the economic impact of this model "is the financial collapse of municipalities when the housing bubble burst." "They fell into a gigantic deficit because they had to maintain the entire network of public utilities of new constructions."

She also wonders "where the revenue has gone" and refers to the black money paid to construction workers during the bubble. "These are tax losses along the way," she says. In addition, she calls for an accounting of “the cost of the loss of human capital, of untrained people” because they were seduced by the high wages in construction. She also adds the cost of “transforming municipalities” from a demographic and cultural point of view.

Huete suggests that the developers "should take on the tourist management of the real estate investment". That is, not only to promise buyers of villas and apartments that the profitability of renting will be very high but to offer a "tourist rental management and maintenance service with legally hired workers, not to leave it to the neighbours". "Many services can be offered, but you can't call selling houses tourism," she says. She also notes that the employment from residential tourism "is not tourist because it has not been developed". "There are no guides or social activities, they themselves generate their leisure activities and excursions. All outside the formal economy, without paying taxes. In fact, if you go to those residential estates, you can find a hairdresser cutting hair in a bar, for example. And if you ask to see his papers, he'll tell you that he can't speak Spanish."

Researcher Raquel Huete believes that developers "should take on the tourist management of real estate investment"

In short, one thing is the hotel-based tourist activity that builds and manages facilities to obtain an economic benefit and that can have an impact on the local economy by creating jobs linked to the services it provides, and another thing is a short-term residentialism based on the construction of new homes where developers aim to build and sell, and once that is done, end their commitment to the local area. The new resident becomes another neighbour, generating the usual consumption and expenses.

For his part, Tomás Mazón argues that "well-done and well-planned residential tourism is a magnificent development tool" that "provides municipalities with a lot of revenue". However, he regrets that when it is done with "inadequate planning", in "areas with a strong environmental impact and in front of the sea and beaches" then "it takes its toll and robs us of landmarks, landscapes, ecosystems".

Residential tourism: a safe bet since the 1960s

Professor Mazón insists that the coast of Alicante was already committed to the model of residential tourism in the 1960s, when tourism in general began to develop. "In the 1960s, the first apartment blocks began to be built, as was the case in Sant Joan d'Alacant," he explains. The real estate developers were "very small" and "always local, from the surroundings" and some built a building and "disappeared", while others formed "large companies from the local and provincial developers of Alicante". Therefore, no large foreign companies came in to build.

However, the big mass projects arrived in the 1990s and lasted just about until the real estate bubble burst. From this period we find some paradigmatic examples, such as Ciudad Quesada, a residential estate of 30,000 homes south of Rojales, six kilometres from the sea. There are more people registered here than in the municipality itself. In fact, it more than doubles the local population and more than 70% are foreigners, making English the most widely spoken language. The name is not accidental, it was named after its developer: Justo Quesada, a native of Orihuela, whose children are also engaged in real estate. It began in 1972 when he acquired thousands of acres of land in the area and began building thousands of homes, accompanied by a golf course and an aerodrome. This developer was one of the pioneers in Valencia and received awards in his business career, such as the Costa Blanca Tourism Award in 1991.

In Rojales, in the south of Alicante, the neighbourhood of Ciudad Quesada is a residential estate of 30,000 homes where more people are registered than in the municipality itself and where more than 70% are foreigners

Another example is the residential estate of Els Campellos, five kilometres from Castalla, also known as "Castalla Internacional", which added more than 1,000 inhabitants to the municipality of 8,000 residents. A first phase of 350 villas was completed and the bursting of the bubble and the bankruptcy of the developer Marsadi left the second phase - which foresaw 350 more houses - with dozens of homes unfinished. This was the first urban macro-project to build houses further away from the popular beaches of the Costa Blanca, but at lower prices and with good access thanks to the inland motorway.

Huete explains that all these operations were possible due to a favorable economic and political context, where especially the local governments of the Popular Party "bought into the idea and legitimised the housing development process". “The distinction between the construction of housing and tourism was no longer made,” she says. As an example she makes reference to the good practice of the Alicante developer Marjal, who added services to the construction that linked it more to tourist activity: "It offered to foreign buyers complete packages for moving, bureaucratic management, schooling of children... ."

What will happen with Covid-19?

At the end of May, the Director General of Tourism of the Valencian Government, Herick Campos, predicted that, in the short term, those in the best condition to reveal the light at the end of the tunnel for the Valencian tourism sector is the Spanish tourist - specifically from Valencia - and foreigners who have a second residence. President Ximo Puig already showed at the end of April - in full lockdown - his will to guarantee the right of the owners of second homes to occupy them. This is where the expectations are placed because, as he pointed out, Valencia accounts for 32% of residential tourism in Spain, with Alicante supreme. Could it therefore become one of the most immediate lifelines for tourism affected by Covid-19?

According to a recent Provia study, yes. The Report on the Housing Market in the Province of Alicante carried out for the developers' association by professor Francisco Juárez Tárraga, of the Department of Applied Economy of the UA, indicates that foreigners continue buying houses by the beach despite the pandemic. The figures fell slightly during the first quarter of 2020 - there were 4,369 sales, about 1,000 less than in this period of 2019 - although they have risen among Belgians and Germans (2% and 1%, respectively). The report predicts that demand will increase during the second half of 2020 "thanks to the economic recovery marked by the IMF for European markets and the consideration of housing as a safe haven in situations of economic crisis." Moreover, he maintains that the real estate sector has good prospects in Alicante, as since May only 3.36% of real estate purchases have been cancelled - a usual figure - which "denotes buyer confidence". In addition, the Alicante firms in the sector confirm that 96.2% have not modified their pricing policy. In fact, 9.4% of those consulted believe that there will be price increases for their projects between August and December, albeit "significant reductions" are expected in second-hand housing.

The study of the housing market in the province of Alicante states that the demand for housing will increase during the second half of 2020 due to the recovery in European markets

Researcher Raquel Huete disagrees. She says that "it's a myth that residential tourism helps tourism", and it is this latter "that saved and kept the financial sector from total bankruptcy", and it was thanks, in her opinion, to investments in airports, advertising, promotions and services. "The economic crisis disrupted the growth of the tourism sector, but it did not suffer anything like the collapse experienced by the real estate sector. At the worst moments of the crisis, the main tourism economy showed its strength," she explains. She notes that "the confluence between the tourism economy and the real estate economy has served to give both sectors spectacular profits in stages of expansion and wealth creation," but in times of crisis and recession, "the construction sector is showing itself to be much weaker and is trying to protect its interests by joining the tourism sector." "Everything indicates that, without the burden of the real estate business, the tourist economy of the Costa Blanca could undertake more solid and sustainable socio-economic development projects, aimed at consumers with more purchasing power," argues Huete.

Looking to the future, the researcher believes that second homes are already obsolete: she maintains that, after five decades of "mass construction", the available land is running out and the room for maneuver of the real estate sector to "offer products of interest in the province of Alicante" is every day "more limited". Therefore, she believes that developers should allocate resources to the rehabilitation of houses in the interior of the province to put them to tourist use. "It's not about turning small towns into tourist centres, it's about making small investments that revitalise them," she says. To do so would require, she adds, a change of mentality and moving from the system of urbanisation of many cheap houses to another of small interventions that provide less profit.

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