The short-term lets market has expanded significantly in recent years. As it becomes a more mainstream asset class, would more regulation help or hinder the sector?
A growing number of people now use short-term letting platforms to rent out all or part of their homes. The idea isn’t a new one; popular rental platforms like Airbnb, SpareRoom, HomeAway and Couchsurfing have been offering their services for more than a decade now.
However, due to its exponential rise over the past few years, there has been much more of a focus on it by both the government and the housing industry. There are a number of benefits to it for both the property owner and the user, such as increased flexibility, greater affordability than hotels, and higher returns for owners than some long-term let options. But the sector has come under criticism and increased scrutiny, too.
Last week, the House of Commons Library published an extensive report looking at “The growth in short-term lettings” in England. The government is expected to discuss the paper later this month, while Airbnb also plans to develop a white paper in the coming weeks.
No increased regulation
Certain regulations already exist in the sector, such as the 90-day limit in London. Anyone in the city who wants to let out their property for more than 90 days a year must apply for planning permission. Also, some individual tenancy or lease agreements restrict short-term lets across the country.
There have been calls across certain parts of the industry to bring in more regulation for short-term lets. London Mayor Sadiq Khan believes there should be a mandatory local authority registration system in the capital for short-term lets.
Last year, he said: “Short-term lets are a benefit to visitors to London, and to Londoners themselves who want to earn a little extra money. But these benefits must be balanced with the need to protect long-term rented housing, and to make sure neighbours aren’t impacted by a high turnover of visitors.”
However, the report last week stated that the government does not plan to bring in additional regulations at this stage. It believes further legislation would be “overly bureaucratic, and could act as a barrier to households letting out their properties on a short-term basis”.
Instead, the government intends to take a non-regulatory approach, in conjunction with the Short Term Accommodation Association. It believes this will continue to “improve standards and promote best practice”.
The positives of short-term lets
The report covers a number of the positive impacts the short-term let industry has in the UK. It points out that the “accommodation sharing economy” that now exists as a result of the growth in the sector is a huge benefit to consumers from both sides of the market.
“Consumers benefit from a choice of different types of accommodation in a range of locations, often at a cheaper rate than traditional accommodation options such as hotels.
“Property owners can benefit from earning additional income from their house, flat or spare room when they are not using them or in periods when demand for accommodation is high. A typical Airbnb host in the UK earned £3,100 in the year to July 2018.”
The UK tourism industry as a whole also benefits from the likes of Airbnb, says the report. The hosting platform says that 8.4 million people visited the UK and stayed in short-term lets in the year to July 2018. Furthermore, while hotels mainly exist in already popular tourist destinations, short-term let locations vary. This “spreads the benefits of additional tourist spending more widely”.
Investing in the sector
Short-term and furnished holiday lets offer an attractive option for property investors. According to ARLA Propertymark, 2.7% of all landlords have moved from long-term tenants to short-term lets. This equates to around 46,000 properties.
In total, 16% of landlords in the UK currently offer only short-term lets. Meanwhile, 7% offer a combination of short- and long-term. This figure has increased due to a combination of factors including the increased flexibility of property use, more regulations in the private rented sector, and the potential for higher returns.
From a tax point of view, a furnished holiday let is treated quite differently to a buy-to-let property. For pension purposes, profits count as “earnings”. You can also offset your mortgage costs against your taxable gains, unlike with buy-to-lets (see this article on Section 24). Capital gains tax, which is 28% for property assets, is also treated differently when you sell a furnished holiday let. You could qualify for entrepreneurs’ relief, rollover relief and holdover relief.
Yields have the potential to be higher, too. Liverpool was last year named the highest yielding place for short-term lets. Yields in the city reached 27.2% based on an occupancy rate of 50% of the year. London, Edinburgh, Manchester and Birmingham are also hotspots.