Is the holiday lets boom over?

Holiday let landlords have found themselves in the cross hairs of the government’s latest reforms of the private rented sector. A tax crackdown on buy-to-let that began in 2016 helped push long-term landlords into the holiday let market, where businesses are taxed more favourably and, until recently, there had been limited political interference.

But a boom in short-term lets in popular coastal areas and other tourist hotspots has left some local residents struggling to find an affordable home and pressure has been growing on policymakers to take action. Hamptons’ analysis of Companies House data shows there were 2,426 limited companies set up to hold holiday homes last year, 310 per cent more than in 2016.

To address the problem, the government last week unveiled proposals to force new second homeowners in England to seek planning permission if they want to let their property on a short-term basis. Councils would have the power to determine whether to take away owners’ permitted development rights and refuse planning applications. (Wales, Scotland and Northern Ireland, where similar arguments rage, have separate jurisdictions.)

What are the proposals?
Ministers are consulting on a mandatory registration scheme and introduction of a planning use class for short-let properties. Properties providing temporary accommodation for holidays, business or other travel would need planning permission to change their use class. Respondents to the consultation, which runs until June 7, are also asked whether homeowners should be allowed 30, 60 or 90 nights a year in terms of a grace period before a short let needs planning permission.

Under the proposals, existing holiday let landlords would not need to seek planning permission. The changes would cover new short-let properties located in areas subject to caps by a local council. In places with fewer short-lets, homeowners should be able to use their permitted development right to secure consent and short-let their property.

Which areas are likely to be affected?
Only 1.5 per cent of all homes for sale across Great Britain were bought by a second homeowner so far this year — a record low. These purchases tend to be concentrated in just a few areas.

Half of all second homes bought in the past five years were in just 13 local authorities, such as Torbay, and Cornwall. When deciding whether to bring in restrictions, councils have been warned not to take a broad-brush approach and are instead being urged to only introduce caps in the streets and small areas with the highest number of short lets.

What will happen to property prices in these areas?
With an estimated 148,000 short-let homes in England in September 2021, according to countryside charity CPRE, the proposals are unlikely to affect prices in broad-based markets across the country.

But in places where councils impose restrictions — and this leads to a fall in demand from holiday let buyers — there should theoretically be less pressure on prices. That said, the proposals offer no discouragement to second homebuyers with no plans to let their property or those aiming to keep below any annual cap on letting days.

A longer-term risk is that in areas where the cap has been reached, holiday homes with short-let permission may begin to attract a premium. There has been a comparable effect with houses of multiple occupation (HMOs) in certain city streets, where councils refuse to allocate more licences. These properties are increasingly likely to be sold to another landlord rather than a local resident.

Suggestions that the consultation could prompt a “rush to buy” seem wide of the mark. Homes in England which are currently short lets will automatically receive planning permission. The proposals may encourage those that were already looking to buy a holiday let to speed up that process or existing landlords thinking about making the switch to do so, but it’s unlikely to entice new entrants into the market.

Will the proposals work?
In areas with a high concentration of holiday lets, the proposals could stop that number growing. However, there is no guarantee these homes will go to local residents. That may only happen if and when they are sold.

The government will also need to consider properties that do not suit permanent occupation. Annexes and outbuildings are not always appropriate for long-term tenants and can’t be sold as a standalone home, so are often let to short-stay visitors. With few alternative uses, these should sit outside any potential cap.

For many locals, the holiday let boom may have pushed prices beyond the limits of affordability but it has also reduced the number of homes on the market for them to rent, as landlords switched from long-term to short-term lets.

To reverse the growth in short-term holiday lets, the government may need to consider more radical action, for example by changing the tax rules to bring short lets into line with the long-term buy-to-let market — a measure that could push at least some landlords into lossmaking territory.

The author is head of research at estate agent Hamptons