Too much of a good thing? The effects of tourism on the housing market in Croatia – TOURCRO

Commissioned by: Croatian Science Foundation
Project duration: February 3, 2020 – February 2, 2024
Project manager: Maruška Vizek
Collaborator: Tajana Barbić (The Institute of Economics, Zagreb), Nebojša Stojčić (University of Dubrovnik), Anita Čeh Časni (Faculty of Economics and Business, University of Zagreb), Ivana Logar (Swiss Federal Institute of Aquatic Science and Technology, ETH Zurich), Josip Mikulić (Faculty of Economics and Business, University of Zagreb), James E. Payne (University of Texas at El Paso)

Summary: The aim of this project is to investigate the impact tourism activity exerts on house prices; a topic with increasing social and economic relevance which thus far has been scarcely addressed in the literature. We focus on Croatia, a small open economy highly dependent on tourism revenues with a tourism industry based dominantly on short-term rental accommodation, in order to investigate how changes in tourism orientation in Croatian local government units (LGUs) influence the prices of apartments, family houses, and building plots. Since Croatia is a relatively small country in which approximately one third of LGUs are oriented toward tourism services, while the rest of LGUs have no direct exposure to tourism, we explore the characteristics and modalities of spatial spillovers of apartments and family houses price across all LGUs due to changes in tourism activity. In addition, due to its historic dependence on short-term rental accommodation, Croatia is an ideal laboratory to assess how the change of the tourist accommodation supply towards the dominance of private short-term rentals offered through digital peer-to-peer platforms affects apartment and house prices. Lastly, we examine whether environmental externalities that can be attributed to tourism activity exhibit an impact on apartment and family house prices in Croatian LGUs. In order to achieve these tasks we build a comprehensive annual database containing data for all 557 Croatian cities and municipalities from 2012 to present, and apply dynamic and spatial panel data estimation methods coupled with hedonic price models. The database encompasses housing market indicators (including median prices of apartments, family houses and apartments), various indicators of tourism activity and standard supply- and demand-side determinants of house prices.