Many sage voices have warned recently that the Renters’ Rights Act will have unforeseen and expensive consequences for the tenants it hopes to protect.
And I agree. Within the UK’s bustling and over-populated cities such as London, Manchester, Birmingham and Leeds, the legislation – which is due to be implemented on May 1st this year – and its many new regulations, will drain the private rental market of a significant number of properties as landlords switch to short-lets. Fewer traditional rental properties will mean higher rents.
Warnings like this are one thing, but last week they became very real for me on a personal level while I chatted to a landlord I have known for years who has two rental flats in central London.
While mulling the state of the market in general over a frothy but over-priced cappuccino, he casually mentioned that he has decided to exit the private rental market and switch to Airbnb.
The landlords’ dilemma
This is a big leap – his properties have been rented out to private tenants since the early noughties. But his decision highlights the dilemma faced by many landlords, particularly ones like him who are not ‘full-time’ and don’t hoover up news about the sector every day.
He is aware that the Renters’ Rights Act is about to hit, and that evicting badly behaved tenants is going to get tougher.
This is important to him. Two years ago, he spent £20,000 and many months evicting a tenant who, it later transpired, was a habitual rent dodger despite having a well-paid job.
The experience made my friend nervous about the rising number of ‘rogue tenants’ within the London rental market and it was justified; the next tenant in the same property went on to sub-let the flat without his permission so, he has reasoned, why switch to the short lets market, which can according to recent research bring in three times more income than a traditional rental?
For example, a quality and recently-refurbished two-bedroom flat in Bayswater will bring £2,500 to £3,000 per calendar month at the moment, while a similar short-let flat will, according to Airbnb’s income calculator, earn £8,400 a month or £250 a night, assuming 100% occupancy.
Short lets not always ideal investment
Despite these juicy figures, I warned my friend that short-lets rented via platforms like Booking.com and Airbnb are not the ideal that some investment gurus like to claim.
There are a few headwinds, for example, the Government will soon bring in more regulation of short lets, and HMRC now receives rental income from Airbnb about individual property owners, while short/holiday lets can be badly treated by some of the people who rent them, often expensively.
My friend’s argument was that the Renters’ Rights Act will introduce a level of complexity and extra cost that makes short lets much more attractive. Also, the prospect of waiting four or five months to evict a traditional tenant who stops paying their rent (given the current delays within many London courts) is another key reason, along with the additional red tape and regulation for landlords concerning pets, rental bidding wars, rent in advance, tenancy reform, the Decent Homes Standard and huge fines for non-compliance.
These unintended consequences were put to the Government on many occasions as the Act went through parliament, but always rejected, ministers claiming there was no evidence of landlords leaving the sector and that even if they were, a small contraction in property numbers was a price worth paying for a more ‘just’ private rental sector.
Evidence points to a bigger shift
But the evidence points to a bigger shift, one that my friend’s decision is a part of. Research published by Lighthouse recently revealed that the number of properties available for short-term rental in the UK during 2024 had increased by 33% when compared to 2019. And while London remains the city with the most short-term lets, conurbations like Manchester, Birmingham, and Liverpool have seen above-average increases over the same period.
And that’s all before the Renters’ Rights Act came along – so expect to see more landlords running gladly into the arms of the big short-lets and holiday rental platforms.
