Comment: Regulating short-term lettings treads a fine line

Charging should be considered to help create a level playing field in hotspot areas, says Boyle. Picture: Steve Reid

For the Scottish economy, the sector has clear economic benefits, but it also has marked social costs and consequences. Such has been the furore from many residents in places with high concentrations of short-term let providers, the Scottish Government has just completed an extensive consultation exercise on future regulation for the sector, with a view to introducing legislation.

The Government’s information document, which accompanied the consultation, emphasised the benefits of the sector in terms of tourism and helping to create more flexible housing and labour markets. However, it is also aware of the impact on availability of housing stock, affordability and quality of life for many residents.

In Edinburgh, listings for Airbnb (the leading provider but far from the only one) have jumped from near zero ten years ago to around 12,000 last year. The capital now has a higher density of such listings (240 per 10,000 residents) than places like Barcelona, Berlin, Dublin and London, all of which have introduced regulations of varying degrees of severity. Analysis by Rettie & Co shows that core private rental sector (PRS) listings have been falling in the city over the last four to five years, coinciding with the sharp rise of Airbnb. In parts of the centre and the north of the city, such listings have dropped 20 to 30 per cent since 2014. Advertised rents in some areas are more than 40 per cent higher over the same period, with areas with high Airbnb concentrations rising fastest.

There are a number of measures under consideration from the Scottish Government to reform the sector. In my view, the Government first needs to define short-term letting – there is currently no statutory definition and practice can vary widely. Regulation should focus on that part of the industry that seems to be having the most significant consequences, i.e. commercial letting (particularly with shared communal areas) rather than sharing and swapping accommodation.

As a minimum, there needs to be a registration scheme for the sector so that activity can at least be monitored. There also needs to be investment into monitoring and evaluating the impacts of the sector.

Regulation must put short-term letting on the same footing as longer term letting on safety standards. A licensing system is probably desirable for hotspot areas, but it will need resources for enforcement or will have only limited effectiveness.

The use of charging should be considered to raise funds for enforcement or help to create a “level playing field” in hotspot areas with core PRS, but getting such charging “just right” is going to be a fraught process. We want to retain the benefits of the sector while mitigating its costs, not remove it altogether.

Any proposed measures need to be adequately piloted to assess impacts.

Investors in the sector will need to be careful. Regulation is inevitable and, once introduced, short-term letting will likely no longer be as profitable or easy.

Creating a more level playing field with a much more tightly regulated core PRS may lead to some landlords moving back to core PRS. There is evidence of this already occurring in Glasgow, where the local council requires a change of planning use for entire properties to operate as short-term lets in places with shared tenements/closes.

But the Government also needs to be careful – good regulation is fine and will help the short-term letting sector to thrive while countering some of its more harmful side effects. However, bad regulation could damage the tourist industry and the wider Scottish economy (there are already lessons from the likes of Berlin on this). This will be a difficult balance to achieve.

- John Boyle, director of research at Rettie & Co.