Home rentals – growing up

The short term rental marketplace had a strong 2020, as pandemic-hit consumers took comfort from finding private space for their holidays.  

The sector’s relative strength has already been seen across strong performance figures from those in the serviced apartment sector. And inhome rentals, a recent survey by The Points Guy reckoned hotels are now cheaper than equivalent home rentals, in key US markets – as differential demand has flipped pricing.  

“As an industry, we’re going to look back at 2020 as one of the pivotal years,” said Merilee Carr,  chair of the UK Short Term Accommodation Association. She said research suggests that once consumers have tried a home rental, they are more likely to return to the format when booking accommodation in future. And, with OTAs increasingly presenting rentals on their websites alongside hotels, the consumer is less drawn to the traditional offering. 

But that positive year has not come without storm clouds on the horizon. Calls for further regulation of the home rental marketplace continue. In Barcelona, mayor Ada Colau wants to make permanent a temporary rule that restricts homeowners from renting out a room for less than one month. City authorities argue the rule would “guarantee the social function of housing and avoid a saturation of tourist rooms that would cause problems of coexistence, impact the housing market and harm neighbourhood trade.” 

The move, which is subject to consultation, follows other measures already taken in the city, which has long required short stay apartments to be licensed, and in 2018 created an ID system for hosts.  

And in Scotland, politicians are pushing ahead with plans for more regulations, requiring short term lets to be licensed by local authorities. Councils would also have a right to further restrict those licenses, in areas where short term lets are viewed as being in sufficient volume as to affect a local housing market.  

Willie Macleod, executive director at UKHospitality Scotland, commented: The past few years has seen a boom in short-term letting, which has brought with it a host of issues for residents and customers and highlighted serious issues around fairness. This is not about stifling innovation. Regulation is necessary in order to ensure that customers are protected and there is a level playing field for businesses. 

Elsewhere, Airbnb has recently agreed to provide the UK tax authorities with details of earnings its hosts made from the platform, going back over previous years. Figures suggest hosts earn an average GBP3,100 per annum off the platform, putting many beneath the tax-free earnings threshold of GBP7,500 per annum – though more serious renters may need to have accounted for the tax due on their earnings.  

Carr said she worries that regulation is often sought as the wrong solution to a problem. “There is a perception that this is a cowboy sector – but there are already regulations that affect our sector.” And she says the key question must always be: “What is it you are trying to solve?” 

UKSTAA argues that often, it is an overall housing supply problem that creates a housing shortage, and higher prices – not shortterm rentals per se. And, ironically, higher living costs can push residents towards letting out a room, as a way to help cover increased housing costs. “Nightly limits are a regulatory tool that can be used in areas where there is a housing problem,” argues Carr – setting an annual rental limit of around 140 nights a year, tilts the economics such that it discourages professional landlords. “But it always needs to be evidence-based.”  

Further licensing, says Carr, is often called for, but rarely needed. Councils don’t need to get involved implementing schemes they rarely have the resources to efficiently execute. “The sector is well placed to manage itself,” with accreditation programmes that clearly mark out to consumers, those properties that have made the grade. “The host pays for accreditation,” thus ensuring responsible landlords are signed up – and the public purse is not involved.  

Thirdly, Carr said there are ways of managing “frustration points” that end up being reported locally around noise and nuisance. “The reality is, the cat is out of the bag, and banning creates a black market.” She cited one London borough where a simple, cheap registration of a responsible manager for each rental property provides a fast point of contact, in the place of any complaints – enabling swift action to solve any issue. And she warned: “Often, regulators don’t understand the behavioural impacts of what they’re proposing.” 

Carr also called on cities that complain of overtourism to view the situation as an opportunity, not a problem that needs to be regulated out of existence. “I would argue that it’s not in most city’s or country’s interests, to reduce tourism.”  

HA Perspective [by Andrew Sangster]: The regulation of a new, or at least a more visible, industry is always going to be contentious. But there are a few rules of thumb that ought to give guidance. 

The first is that incumbents should not be allowed to use regulation as a way to stifle competition. One person’s level playing field is another’s skewed pitch.  

The second is that incumbents who rely on regulation to defend their position are likely to be out of business before the regulators get to work. 

That all said, it does seem the case that short-term rentals need to treated as a significant asset class, worthy of regulatory scrutiny. 

There are three principal areas in which Airbnb-type short-lets need to face tougher measures: tax, planning and life safety. With all three criteriathe current situation allows properties let on so-called sharing platforms to avoid and / or evade their responsibilities. 

With tax and planning, authorities are beginning to bring the most egregious violators to heel. There remains much to do and it seems an appropriate registration scheme is still needed. 

An area which has received scant attention is life-safety. Perhaps because, fortunately, there have been few incidents involving guests. But it remains the case that Airbnb is able to list properties that do not conform to the standards required of, say, longer-term lets. 

Platforms have managed to persuade regulators that they armarket places rather than market participantsIn reality they are both. The key to this definition should be who collects the money. Platforms like Airbnb have a duty towards both consumers and suppliers and there should be better rules in place to enforce this. 

In the UK, money laundering regulations force estate agents to undertake due diligence on both buyers and sellers, a regulation that is overseen by tax authority HMRC. Even for rentals, landlords are required to check a tenant has the right to rent a property. 

Similar checks can, and should be, required of platforms like Airbnb. In particular, the same gas and electrical safety requirements should be required for short-lets as they are for lets of six months or more. 

Just as estate agents have to check the bone fides of their clients, platforms – which are in reality agents – should be required to check who they are dealing with, including whether theris planning consent and a tax registration. Some form of legislation to create this requirement, which need not be overly burdensome, is required. 

Unfortunately, some lobbyists on the side of the established hospitality sector have gone down the rabbit hole of pointing out market distortions regarding residential property. While raising the issue of local residents being priced out of homes by tourists might be a tempting quick win, there is an obvious downside for the whole tourism sector. 

Far better would be to stick to requests for a straight-forward system that applies to all. With the increased blending of so-called “living” asset classes, there is a pressing need for reform. Established hospitality businesses should take the higher ground of pressing for changes to legislation that benefits all. 

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