We have been sourcing and managing Serviced Accommodations (Known to many as Airbnb’s/ Holiday Lets to many) for over 3 years now. Over the years we have faced a few common questions from landlords about the future of Serviced Accommodation (SA) such as: “Will there be an oversaturation of SA’s in this area over the coming years?” or “Will the government be bringing in any legislations to regulate SA’s over the coming years?”. Our stance on this has always been that eventually, the government will likely start to regulate the SA market in the same way as they have regulated the HMO market…. with a licensing scheme, and strict requirements for properties in terms of fire safety. In October 2023, we saw one of the first stages of this when the new fire safety regulations landed for SA landlords. If you are not aware, we have written a whole article about this (link Below). But this month, there has been an announcement which has progressed the government’s attempt to regulate Serviced Accommodations.
This month (Feb 2024) Michael Gove has announced proposals to require planning permission for short-term lets. The new law would require people letting out their property as a short-term holiday home to seek permission from the local authority under a new Use Class C5 category.
Gove Said “These changes will ensure people have more control over housing in their cherished communities".
“We know short-term lets can be helpful for the tourist economy, but we are now giving councils the tools to bring them under control so that local people can rent those homes as well".
“These changes strike a balance between giving local people access to more affordable housing, while ensuring the visitor economy continues to flourish"
An important thing to note is that this announcement has only been made very recently as of the time of writing this article… so there are many elements of the licensing scheme which have not yet been confirmed, leaving certain details down to pure speculation. We expect more detail to come out in the coming months to further clarify the ins and outs of the licensing scheme.
Potential implications for SA landlords
For SA landlords, these regulations represent both challenges and opportunities. On one hand, obtaining licenses and permissions entails additional administrative burdens and costs, but for landlords who comply with these burdens and costs, an opportunity for increased profitability may emerge (we will explain this in further detail later in the article).
The good news for existing SA landlords, is that existing short term lets which comply with current regulations will be reclassified into the new use class and be granted “grandfather rights”. However, for new SA landlords, converting a property to Serviced Accommodation will require them to seek permission from their local authority.
A valid question to ask at this point would be how strict are the council going to be when it comes to granting licensing to new and existing SA landlords? The answer to that remains to be seen, but our view is that this will vary from local authority to local authority, the same way it varies in the HMO market. Some local authorities in major cities and coastal towns, who have suffered a high volume of short-term rentals populating their area in the past few years, may be a lot stricter compared with smaller towns, with a limited number of Serviced Accommodations.
In similarity to the case for HMO landlords, failure to comply with the new regulations could result in severe penalties, including fines and potential closure of properties. Therefore, SA landlords must prioritize regulatory compliance to safeguard their investments and reputations. Another similarity that this licensing scheme has to the HMO licensing scheme is that the Government also intends to introduce associated permitted development rights – one allowing for a property to be changed from a short-term let to a standard residential dwelling, and a second that would allow a property to be changed to a short-term let. Local authorities would be able to remove these permissions and require full planning permission if they deem it necessary in certain areas. It is also likely that as with the register for HMO landlords, there will be a new register introduced and held by each local authority listing all licensed SA landlords in the area.
Potential Impact on the SA Market
The implications of these regulations extend beyond individual landlords to the broader SA market. In the short term, we anticipate a period of adjustment as landlords navigate the intricacies of compliance. Some may opt to exit the market due to the increased regulatory burden, leading to potential supply constraints in certain locations. In theory, supply constraints will also then lead for limited options for guests, which may allow landlords who remain in the market to increase their prices, and benefit from increased profitability.
On the guest side, we believe it will be more difficult to acquire short term accommodation due to limited supply, and prices may be higher as mentioned previously, but the quality and safety of accommodations will improve as many sub standard SA’s exit the market.
What’s Next?
For current and upcoming SA landlords, the next year or so will serve as a time where they decide if they are in or out. Landlords will need to assess the cost and implications of getting their properties licensed and compliant and decide whether the lemon is worth the squeeze. Serviced Accommodation landlords who intend on sticking around, need to take the necessary steps from a licensing and fire safety standpoint to be allocated their license, and stay in the game. For the landlords that do choose to stay in the game, they may be rewarded with increased nightly rates and occupancy resulting from a reduction in supply.
Looking for a reliable and experienced Serviced Accommodation management agent? Get in touch with us at info@sigmastays.com, call 01270 385043 or head to www.sigma-stays.com/contact