The pandemic has been blamed for many social and economic changes but no one could have predicted that it would lead to such a dramatic fall in the number of private rental sector properties available for local people. Or could they?
The meteoric rise in AirBnB style short term lets has pointed the way to greater returns for many private and commercial landlords but are holiday lets having an impact on communities and local people and will there be anywhere left to rent?
What is a short term let?
Short-term lets provide accommodation for tourists and those staying in a location for a brief period typically for 1- 4 weeks but for up to 6 months. Traditional longer-term lets in the private rented sector are usually for an initial fixed term of six months and are subject to an Assured Shorthold Tenancy Contract or similar.
The restrictions on foreign travel have fuelled a boom in staycation holidays which, in turn, has led to many landlords seizing the opportunity for higher rents by moving their PRS stock into highly sought-after short-term holiday lets.
Countryside areas, seaside towns and other holiday venues have seen some dramatic declines in available properties – as much as 80% in some resorts and it’s not just a temporary phenomenon – it is happening year on year.
The situation is compounded by the fact that as rental properties decline in numbers, there is less choice and therefore many sitting tenants are looking to stay put and looking for longer contracts.
Movement in the PRS
Currently, the number of rental properties available on the market is just 57,382. This is not only -66% less than the pandemic high of 171,080, but some -41% lower than the levels seen prior to the pandemic.
With more tenants staying put, there is a lack of movement in the market and fewer new rental homes becoming available. Fewer rental properties only means one thing – increased demand from tenants which is reaching epic proportions with some seaside areas reporting tenant demand up by nearly 600%.
With this level of competition for PRS properties, inevitably rental prices have increased with the negative impacts on affordability and in some more rural tourist areas, the sustainability of local communities.
This, in turn, can badly affect local public services and the wider local economy. Population decline and labour shortages and a decline in quality of life are real issues for some communities in rural areas suffering from a housing shortage due to holiday lets.
Is it fair to attribute all the blame to Covid?
The growth in the AirBnB market over the last decade, together with the removal of tax relief, higher stamp duty and the increased legislation for PRS properties, including the proposed removal of Section 21 has caused many landlords to rethink their strategy and consider short term holiday lets as an alternative to the traditional longer-term rental model.
When surveyed, 1 in 10 landlords said they were considering such a move which could remove up to half a million properties from the PRS if they chose to change.
Although there are regional variations, rental costs for longer-term tenants have been rising faster in areas where short term rentals are most common. This trend is likely to continue, especially in large cities as property investors look to buy homes specifically for short-term rental.
There is no doubt that in the right area the rental return on short term lets is substantially greater than traditional PRS rentals. Property purchases by outside investors in top holiday spots have increased dramatically in part due to the short-term rental phenomenon.
For many years, governments hoped the PRS would solve the country’s housing shortage but there were already concerns over the recent decline in PRS sector properties well before the impact of Covid and STLs.
What can be done to address this situation?
Legislation that imposes more regulation on PRS landlords could exacerbate the problem by driving landlords into the less regulated short term lets sector.
However creating a level playing field in terms of both regulation and taxation between the two could dissuade landlords from using their properties for short term lets.
Some areas have had success with introducing limits to short term lets where there is evidence of an impact on private rented housing supply.
Will there be anywhere left to rent or is there good news on the horizon for tenants?
Undoubtedly Covid has changed some things forever but with summer holidays now at an end, landlords will need to think about where their future income will come from and whether the staycation boom is likely to subside next year assuming life is returning to normal.
Certainly, it looks as though foreign travel is back on the cards, so holidays abroad are likely to cool demand for STLs.
The option of a reliable tenant seeking an even longer-term tenancy already looks appealing as the more stable and secure option for the next few years.
A recent study by Zoopla has highlighted that rental growth is back into ‘positive territory’ certainly for areas such as Manchester, Leeds and Edinburgh with just 15 days referenced as an average time to secure a rental, the fastest pace since 2016.
With City life starting to return as people get back to work and bars, restaurants and public attractions open their doors; the future of the rental market feels less bleak. Add to this the fact that the growth in technology such as our letting inventory app and property management software is making the life of a landlord much easier, we should see an easing of the pressure on tenants as more and more properties become available again for longer-term lets.