Communities are revolting against colonisation by Airbnb, from Paris to Los Angeles, Barcelona to Amsterdam. Short-term lets, and the landlords who profit from them, face new limits as locals blame the largely unregulated sector for spiralling rents and property prices.

In Edinburgh, under a licensing scheme set for spring 2021, councils will be able to regulate ‘holiday-style’ lets where they decide it’s best for local communities. In ‘control areas’, planning permission will be required to change the use of whole properties for short-term lets.

Scottish housing minister Kevin Stewart says: “In certain areas, particularly tourist hotspots, high numbers of short-term lets are causing problems and often make it harder for people to find homes in which to live.”

Airbnb listings since 2016 have tripled in the city, from 11,000 to 32,000, according to the Airbnb UK Insights Report. Across the UK in 2018 alone they increased by a third to 223,000. London is the largest market; Airbnbs have jumped from 18,000 to 77,000 in the last five years.

Pressure to act

Independent buying agent Henry Pryor says: “I’m sure England and Wales will follow the Scottish lead. I know it’s being discussed in County Hall.

“There will be pressure on Sadiq Khan to act when one in 50 properties are short-term lets, as there’s clearly an impact on housing supply.”

Tighter rules on short-term letting are bad news for landlords who saw in the sector alternative revenue and respite after restrictions imposed on traditional buy-to-lets.

In a recent report, Arla Propertymark, the letting agent association, found 16 per cent of landlords now solely offer short-term tenancies. A further seven per cent offer short and long-term lets.

Arla chief executive David Cox says: “Landlords are continually faced with increased levels of legislation. It’s no surprise they are considering short-term lets as a chance to escape this.”

Unregulated market

Just under 3 per cent of landlords have switched to short-term lets, according to the Arla report; this equates to 46,000 properties unavailable for people looking for a home. In London, that proportion rises to 4 per cent.

“The short-term lettings market is completely unregulated; the exact opposite to long-term lettings. It’s an incentive for private landlords to change from housing residents to holidaymakers,” says Cox.

BTL tax relief cuts and greater tenant protections in the private rented sector in recent years were cited by 38 per cent of landlords as the reason they switched. Over a quarter thought they could achieve higher rents.

A UK-wide short-term let crackdown will disrupt a large number of landlords’ businesses and the future of thousands more. One in 10 is eyeing a switch to short-term lets, according to the Arla report, especially those with more than five properties.

Landlords’ pivot to Airbnb may already be built on shaky foundations, however. Lenders have been extremely wary of the market, suggesting widespread flouting of their rules.

Metro Bank is the only major lender to explicitly permit lets of less than 90 days (up to a maximum of 90 days a year), but only for residential mortgage customers.

A Metro Bank spokesperson says it will “continue to provide this product as it’s something customers have told us they want”, despite the Scottish decision.

Lloyds’ minimum let is six months, and only with consent. Santander’s policy is the same. “There are no current plans to change this,” a Santander spokesperson says.

RBS and NatWest are explicit: “We do not currently have any plans to lend to landlords looking to let their properties on a short-term basis,” a spokesperson says.

Lenders can apply for a court repossession order if a landlord breaks their mortgage agreement.

“It’s likely landlords are either ignoring their mortgage conditions or simply do not understand they’re not allowed to do it,” says Cox.

Gordon Brown partner John Morgan says surreptitiously entering the Airbnb market can create several issues.

“Using a property for Airbnb letting is quite likely to result in it being seen as a self-catered cottage, or perhaps even a guest house, rather than a residential house.”

The effects are far-reaching. Planning permission for change of use might be needed, the property could be assessed for business rates rather than council tax, and the treatment of income from the property for VAT and tax relief purposes is different.

Also, if a property ceases to be classed as residential, different regulations on use and occupation apply on everything from fire risk to food hygiene. “There really is a lot to think about with Airbnb use,” warns Morgan.

Airbnb limits imposed

Section 44 of the Deregulation Act 2015 made it unlawful for homes in London to be used as short-term lets for more than 90 days a year without planning permission. Airbnb now automatically limits bookings in the capital to 90 days, unless there is evidence of planning rights.

Outside London, councils must decide if the extent and nature of short-term visitor lettings within a property amounts to a material change in use. Perhaps sensing the growing backlash, however, Airbnb has recently revealed plans for new nationwide rules.

Lawyers at Shoosmiths point out that these include planning permission for homes used as a short-term let for more than 140 nights; also a tourism levy, where proceeds could be used to offset negative impacts to the local community.

Airbnb aims to present the findings from a six-month roadshow on its planned rules changes to the UK government in the spring.

With pressure coming from all sides, landlords who entered the short-term let market as an escape may find that, in reality, it is a trap. “As databases get cleverer, flouting the rules will become much harder for landlords,” says Pryor.

“Local councils are already cross-matching Airbnb adverts with their properties to see if social housing tenants are sub-letting, and HMRC is cross-matching with taxpayer records to ensure landlords are declaring rent.”

Stricter rules from major player Airbnb, as well as central and local government, are likely to lead to a reversion, according to Knight Frank regional partner David Mumby.

“Landlords who entered this sector for convenience and greater return would inevitably find higher costs with greater regulation,” says Mumby. “It’s likely the number of landlords in this sector would reduce, possibly seeing them returning to the traditional longer-term sector.”

Some suggest fears sparked by the Scottish government’s decision are unfounded. Residential Landlords Association policy manager John Stewart says the RLA is not aware of plans along the lines of a similar move for England and Wales.

“The housing, communities and local government minister in the House of Lords, Viscount Younger, has made clear in a recent parliamentary answer that the government is not planning to establish a register of short-term lets,” he points out.

Freeing up properties

Arla counters that some form of change to limit the opportunity of short-term letting is almost certain – because without it, half a million UK properties could be left unavailable for tenants.

“Unless the [long-term rental] sector is made more attractive, landlords will continue to exit it for the short-term market, resulting in less available properties and increased rent costs,” says Cox.

Arla is proposing a levelling of the playing field between the two sectors for taxation, regulation, and enforcement when the rules are flouted, and better tracking of who is letting what.

“Some landlords will rightly feel aggrieved if they have taken a reasonable business decision to switch to holiday lets due to tax, regulatory changes and the introduction of open-ended tenancies, and then find their new business is under threat from new regulation,” says Stewart.

“But if the powers are used wisely to tackle rogue operators providing unfair competition, those in the legitimate holiday home market may welcome better regulation.”