Let’s Chat Holiday Lets!

Holiday lets, mostly in the form of Airbnb-style arrangements, have boomed in the UK in recent years. How is this impacting the private rental sector?
By Ben Yarrow
1 November 2023

Holday Lets Houses



Let’s Chat Holiday Lets!

Sadly, our summer holidays have come to an end, but the impact that they are having on our housing sector has not. Holiday lets, mostly in the form of Airbnb-style arrangements, have boomed in the UK in recent years. In many areas of the country, private rented sector (PRS) landlords have taken the decision to invest in new, or shift current PRS housing stock to holiday lets. This is a significant driver of the current imbalance in supply-demand in the PRS that we are seeing across the UK. On average, 20 renters are now competing for every home and according to their trade body PropertyMark, letting agents registered 118 new tenants per branch on average, up from 64 in December. We have discussed elsewhere on the site the impact of this crisis and how Marks Out Of Tenancy can help.

But how bad is the situation with holiday lets? Well, according to Generation Rent’s data between 2019-22, 26,043 second homes or holiday lets were created. 80% of this growth was concentrated in just 25 local authorities – with obvious examples like Cornwall, Dorset and Devon being up there. However, major urban areas have not been immune to this uptick in Airbnbs - Leicester, Salford, Coventry and Portsmouth were all top areas of growth in this sector.

Importantly for the ongoing work of Marks Out Of Tenancy, the London Borough of Southwark experienced the 2nd-largest growth of any local authority in the country, gaining more than Cornwall! In Southwark 2,428 homes became 2nd-homes or holiday lets – a whopping 61% of the entire newly added housing stock in the borough over the same period. 

It's another story seemingly next-door in the borough of Lambeth where we are also currently working. The Borough actually lost 40 holiday lets during these years – having only 374 identifiable. This highlights how holiday lets are putting pressure on the sector on a very uneven basis. 

But why is all this happening? 

Well, on the ‘push’ side, partly it’s the result of private landlords having a mildly ‘tougher’ time in recent years. If one ignores the enormous asset-price windfalls that landlords have, Savills argues landlord profits are on average at their lowest level for 16 years – with a mix of tax-changes, inflation and interest-rate hikes to blame (although given current rent-hikes and the fact only 57% of landlords have a mortgage this is not the whole story). 

Some landlords have thus been looking for alternative ways to make money from their asset.

This London landlord can’t find a tenant that can afford to cover his mortgage so is looking to short term lets as a solution. This is emblematic of the problem.

More importantly, on the ‘pull’ side, the holiday lets centre has a range of tax-incentives in-place over the PRS.

In particular, 2017 changes to taxation for buy-to-let landlords did not extend to holiday lets. A holiday let is still treated as a business for tax purposes whereas a buy-to-let is regarded as an investment giving rise to investment income. Unlike the latter, owners of holiday lets can deduct the entire cost of their mortgage interest regardless of other income. This relief has now tapered away for other residential landlords - who now only qualify for basic rate tax relief on loan interest.

Of course, regulations on housing standards and tenants’ rights are also significantly less for holiday lets than the PRS – likely reducing costs further for landlords.

The pandemic then also created a whole-new boom in demand for holiday lets. We were all cooped up and dreaming of travels during that grim period. Some were able to save significant amounts of money during the lockdowns that have then fuelled their post-pandemic desires to be on the move. 

UK-based tourism experienced a boom, with many forced to not travel abroad – they found a greater joy in ‘staycations’ in the UK that has continued. The UK as a whole and many individual areas also saw this tourism as a way to manage the pandemic and recover economically and have encouraged it through ad-campaigns.  

But this isn’t just about short-stays, the rise in ‘digital nomads’ has seen high-earning individuals who can work from anywhere with an internet connection utilising short-term lets. 

And of course we have also begun to see how climate change will fuel UK-tourism. Many will be much more concerned about going abroad with climate-disasters such as the fires in Greece on the rise and the UK’s climate becoming more manageable than that on the continent. 

So what can we do about the rise of holiday lets?

The government has consulted recently on bringing in a requirement to licence all holiday lets so standards can be upheld and better-data will be available on the issue to policy-makers. They have also consulted on empowering planning authorities to refuse permission to convert homes into holiday lets.

These would be positive reforms, but it does risk locking-in. We also need to think about the taxation regime and consider what to do about these holiday homes that have already been converted.  

Of course, the UK is only the latest frontier in the Airbnb-ification of the housing sector. We can look to areas like Lisbon and Barcelona to see how bad this situation can get without a range of policy-tools being deployed.

Now here at Marks Out Of Tenancy, ironically we have learnt a fair bit from the tourism sector. We believe that reviews of properties make a significant difference to peoples’ experiences of them.

In instances where a PRS home does get flipped to a holiday let (or vice-versa) we believe having reviews available in both instances will allow tenants and enforcement authorities to understand the potential issues in the property.

We also believe that Marks Out Of Tenancy will be a vital tool even when more regulation on holiday lets (hopefully) is introduced. For example, some of the proposed government reforms are already in place in London, where homes let out on a short term basis for more than 90 days in a given year must obtain planning permission. This has helped, but clearly this policy is not well-enforced – Generation Rent found that 6,297 of 41,224 whole-property Airbnb listings in London were available for more than 90 days. 

Now whilst holiday let platforms might not enjoy the idea of informing on their clients to the local authority when they fall foul of licensing or other regulations, Marks Out Of Tenancy has an edge. We’re not involved in the transaction between the tenant and the landlord at any moment - giving us vital independence - something we recently discussed in more detail in the housing blog RedBrick here.  As a result, we believe that Marks Out Of Tenancy can support boroughs like Lambeth, with major issues in this area, to monitor and enforce on these trends in the PRS.