The UK’s main professional and regulatory body for letting agents, ARLA Propertymark, has released a new report that investigates short-term lets and how they affect the private rented sector. The research has been conducted by an independent consultancy called Capital Economics, and while it’s important to remember that it was commissioned by an association of letting agents who will be broadly against short-term rentals, the report does contain a lot of fascinating analysis and exploration of industry trends.
You can read the full report here, but some of the key points are summarised below.
What do we mean by short-term lets?
Short-term lets are the kind of thing you might pick up on Airbnb or similar sites. Often a cheaper alternative to hotel or B&B accommodation, they tend to cater to tourists, people on short-term work contracts, or people moving to a new area and looking to find their feet before they commit to something long-term. There’s no official description of what constitutes a short-term stay, but for the purposes of the report Capital Economics defined it as anything between one night and six months. Broadly, it’s the difference between living somewhere and staying somewhere.
Originally a canny way for homeowners to make a bit of cash out of a spare room or an annex, short-term lets have become increasingly appealing to portfolio landlords – and this is where they begin to affect the wider private rented sector.
How popular are short-term lets?
Hugely popular. It’s difficult to assess quite how many short-term lets are being arranged because there are so many platforms and not everyone shares their data, but on Airbnb alone there were almost a quarter of a million listings in the 2017/18 reporting year. And the market is growing. The report estimated that listings in London alone have quadrupled since 2015.
Crucially, though, it’s a mixed picture. While some areas have a relatively high proportion of short-term lets (especially places like London and Edinburgh), other areas have very few. The report cautions that when regulations eventually catch up with the booming short-term lettings sector – which is bound to happen sooner or later – the government will have to be very careful to avoid one-size-fits-all solutions.
What impact is this having on the wider private rented sector?
Originally, short-term lets tended to be rooms in people’s houses – spaces which probably wouldn’t have found their way into the long-term lettings market anyway. However, increasing numbers of listings on short-term rental sites are for entire properties, and many of the owners are listing multiple properties at once – a strong indication that they are portfolio landlords rather than people with spare rooms. In fact, a 2017 survey from the Residential Landlords Association (RLA) suggested that 7% of respondents had changed properties from long-term to short-term lets. As more professional landlords switch whole properties to short-term lettings, it reduces the amount of housing that’s available for people to actually live in.
Over the past twenty years, the private rented sector has almost doubled in size, and there has been a corresponding decline in the amount of social housing. This means that good availability of long-term private rentals is essential to making sure people in the UK have homes.
Why are more landlords switching to short-term lets?
Private landlords have been a governmental punchbag for some years now. Stamp duty hikes and the abolition of lettings relief have whittled down margins for buy-to-let landlords, while tough legislation such as the tenant fees ban has increased overheads and left them less able to protect themselves against bad tenants. The upcoming abolition of Section 21 evictions – with no viable alternative currently proposed – will leave landlords much more vulnerable to spiralling rent arrears.
The short-term lettings market, on the other hand, offers potentially higher margins, less onerous regulations and – in some senses at least – lower risks of losing large amounts of money. The work of running these properties is more intensive, but there are increasing numbers of agencies springing up that can take much of this off your hands.
What does the future look like for short-term lettings?
If things continue as they are then it’s highly likely that the short-term letting sector will continue to expand, and the Capital Economics report found that increasing numbers of private landlords (around 10% of the landlords they surveyed) were considering making the switch. This could have a knock-on effect on the amount of housing available for longer-term rentals.
But it’s very likely that things won’t continue as they are. The short-term lettings market is attractive partly because it’s fairly unregulated – especially compared to long-term letting and the hotel industry, with which it’s in more or less direct competition. There’s currently a wide disparity between short-term lets and other temporary accommodation, particularly in terms of safety requirements. While individual countries or authorities have begun to introduce regulations (Northern Ireland, for example, operates a licensing scheme for short-term rentals, Scotland is in the process of creating one, and London has a 90-day annual limit), short-term lettings are ripe for a clampdown.
The report suggests various ways to improve the situation, but some of the core recommendations centre around levelling the playing field between different kinds of lettings (and the hotel industry), particularly in terms of regulation and taxation. It also focuses on the need to draw clearer official distinctions between small-scale rentals where someone is letting out a portion of their home, and larger commercial operations.