No less a person than the First Minister used her speech at the recent SNP conference to announce the Government’s intention to regulate this market. One presumes – hopes – that these steps will not only ensure that new and recent entrants to the short-stay market will not only adhere to planning and safety regulations, but also pay the appropriate levels of local and national taxation on the profits they make.
One would also hope for a limit on the number of residences that can be used for this purpose in a local authority boundary – just as planning regulations try to ensure that commercial streets have a balance of office, retail and leisure premises.
To some extent, limiting the number of short-stay residences goes against my free market instincts, but without it, even though regulation and a tightening-up of the tax regime takes place, I fear the wider problem may get worse. Let me explain why.
Since the private rental market was re-born through the introduction of short-assured tenancies more than 30 years ago, investors (particularly the private landlord with one or two properties) have had good times and bad. During periods when demand for properties was high among owner-occupiers (as well as rental investors) then capital values would rise, boosting overall net returns.
It was the same with rental income. When demand fell back (both among buyers and tenants) then capital appreciation slowed or stopped altogether and rental income also declined. But on the whole, the good years exceeded the bad and, on balance, most landlords were able to enjoy a healthy overall return over, say, a decade.
However, since around 2010, increased regulation and a tightening of the tax regime has made good returns – even during a period of high demand – somewhat more difficult to achieve. I wish to emphasise that much of the regulation imposed by Holyrood (especially relating to tenant safety) was desirable, but nevertheless for many landlords it meant additional running costs, which obviously had a negative effect on returns.
As for more recent regulation at Westminster, all of the earlier tax concessions – introduced to boost the number of homes available for rent rather than provide a break for “the rich” – have more or less been eliminated.
My concern, therefore, is that even if we have proper regulation of existing residential short lets (and those benefiting are made to pay their fair share of tax), conventional landlords whose returns are becoming marginal may be tempted to turn their properties over to the “tourist” market entirely, which would have huge consequences for local citizens and those coming to Edinburgh for work and looking for a home to rent long term. Incidentally, this is an issue not confined to Edinburgh; it also affects less-touristy cities – such as Glasgow and Manchester – which are now popular destinations for “shopping and Prosecco” weekends.
Neither is it restricted to the centres of these cities, because the short-stay letting phenomenon is extending to suburbs. Airbnb markets itself as allowing visitors to “live like the locals” – but that’s not exactly true, is it? Unlike leisure visitors, “locals” do not stay up late (as they have work to go to in the morning), do not regularly come and go in taxis day and night, and do not hump luggage up and down communal stairs every few days.
Yes, leisure visitors to Scotland should have a wide range of accommodation options. For decades, these have included short-stay properties provided by bona fide landlords experienced in this market and able to exercise their own measure of responsibility and control. But this is at odds with the current uncontrolled situation; let us hope the recent words from politicians are followed up with action.
David Alexander is MD of DJ Alexander