Is it impossible to convert hotels into homes?

Among these implications was partial obsolescence of infrastructure developed in the dash for Big Tourism and via the process of Balearisation, as development came to be known in a pejorative sense on account of the negative consequences of coastal transformation. So, by the time of the first general tourism law, policy-makers and commentators had become accustomed to referring to obsolescence, even if this was little more than 30 or 40 years old. As hotel stock was high on the obsolescence agenda, the law sought to address it. One of the articles in that law therefore referred to “the regime of establishments given definitive closure”, and a clause highlighted the possibility of change of use to a non-tourism purpose. This was an alternative to, for instance, total demolition and starting over again with a new tourism establishment.

More than anything, change of use could have envisaged residential accommodation. Could have, but not that this was necessarily the outcome. In fact there was virtually no change of use. Move forward thirteen years, and the second general tourism law was introduced. This also considered obsolescence and was more specific than the 1999 law in opening up the possibility of converting old hotels into homes. There was a good deal of discussion of this potential conversion, the minister, Carlos Delgado, having received plaudits for pressing this particular initiative.

The law was passed at a time when the tourism sector was starting to emerge from the decrease in tourism activity caused by the financial crisis. For the owners of hotel properties, there was perhaps some incentive to go down a conversion route, the crisis having contributed to exposing obsolescence. But the practice wasn’t to support this. The law itself lacked genuine incentive in financial terms, a stumbling block having been, for instance, the absence of a waiving of town hall licensing rules that required payment. Moreover, there were planning regulations that had been cemented in the 1999 law and the confirmation of POOT, a sort of quota system that determined classification according to residential or tourist purposes. Reclassification wasn’t in theory out of the question, but in practice it ran up against municipal inertia.

So there wasn’t a dynamic to encourage conversion, while the owners were by 2012 seeing light at the end of the financial crisis tunnel, the return of the tourism good times and ultimately an upward revaluation of their real estate that had taken such a knock from 2008 onwards. But for cash-strapped owners not wiling or able to hold on, there was always the possibility of selling at knockdown prices to investors who were hovering and indeed hoovering up hotels. There were isolated examples of conversion, but these were in the spirit of a law that hadn’t contemplated specific housing purposes. This wasn’t conversion for affordable or social housing, the narrative surrounding this in 2012 having been nothing like it is nowadays.

Conversion to whatever type of housing purpose has been on the table for at least 25 years, the possibilities for this having most recently been pursued by both the Armengol and the Prohens governments. With Armengol, the impetus was the pandemic. Emergency measures designed to assist a battered economy included the conversion of hotels. The Mallorca Hoteliers Federation, for one, was supportive of this measure in that the federation said it would study its potential. The reality was to be that the pandemic, for all that its impact was that much more devastating, wasn’t as enduring as the financial crisis and also resulted in financial assistance to businesses in a way that the crisis never did. The light at the end of the tunnel was to be seen earlier, while social housing provisions set out by the government were to be less than appealing.

One of the first major announcements by the Prohens government after it took office in 2023 was the issuing of the emergency housing decree. Hotel conversion was once more back on the table, the new government in effect having reworked the text of the Armengol government’s decree, one that proved to be a total failure in that there were never any applications for conversion.

In 2022, the Armengol government entered into an agreement with developers for up 14,000 affordable new homes to be built over the next few years (unspecified number of years). For Mallorca specifically this was 12,700. Conversion was to be limited to one and two-star hotels (and including hostels), of which there were 186 establishments in Mallorca. If one-key tourist apartments were added, the number increased to 365. Together these had 11,476 units, around 90% of the targeted number of new homes. Allowing for a reduction in the number of these units because of renovation and enlargement, it was possible to envisage at least 50%. But there wasn’t a single taker.

Proposals for conversion had to be submitted to a commission for the conversion and change of use of tourist accommodation establishments. Presided over by the tourism ministry, this commission comprised various ministers (and/or Council of Mallorca councillors), town halls, the two main employers organisations and the two main unions. The unions had a particular interest because of employment implications of the loss of tourist establishments. Town halls were to be given two months from application to determine if a conversion project was a goer or not. Among issues were implications for mobility - traffic, access to public transport and such like. And if owners did ultimately opt for conversion and this was approved, they would have to pay town halls five per cent of the cost of the work. Which was precisely what they had been expected to pay under the 2012 tourism law.

The Prohens administration is at least seeking to streamline procedures. But for all that it has since modified its initial decree by the introduction of the concept of limited-price housing, which does imply a rather greater incentive to and benefit for developers, the housing minister, José Luis Mateo, last week responded to a question from the opposition regarding progress with conversion by explaining that there are currently all of 34 homes in the pipeline. These comprise 15 in Sant Llorenç, eleven in Manacor, six in Ses Salines and two in Costitx. To the government’s credit, these are 34 more than the last government managed, but the thus far paltry number once more highlights the apparent difficulties that conversion entails, principal among which seems to be lack of incentives.

Into all this does come the possibility of expropriation, but that raises the issue of a fair price to be paid. When the Armengol government said it was setting aside a budget for this - ten million euros - a response from the Spanish Association of Hotel Managers and Directors was that it would mean “ruin” for families in Mallorca who were going to lose their main source of income by seeing their hotels expropriated for “ridiculous fair prices”. These families might hope for the day when an investor knocks on the door and offers them what they consider to be a genuine fair price. Even with the most obsolete of establishments, they know the value of real estate. Is conversion on a meaningful scale ever going to happen or is it impossible?