Cllr Jonathan Glanz is a Westminster City councillor
Back in February the DCLG put proposals out to consultation to remove the restrictions on London property owners wishing to rent a home on short lets (90 days or less) from doing so without planning permission. This week the House of Commons backed a change to the Deregulation Bill and gave it its third reading.
The DCLG proposal has good intent but risks further overheating and distorting the central London property market. These plans have been drawn with a view to liberalising short-term rentals and giving freedom to property owners to make the most of websites which help holiday makers find alternatives to hotel accommodation in the Capital. But these plans have potentially dangerous side effects.
First, by removing planning restrictions on short terms lets the investment yield on a property balloons exponentially. Take a typical one bed flat in the West End, which might rent on the open market on a normal Assured Shorthold Tenancy (AST) for £500pw. The very same property listed as a short term/holiday rental can reach £500 + a night.
Instantly the property has gone from a rental return of 3% to a potential 15 %+ (even allowing for vacant periods, and additional management costs). This hugely increases the value of the investment return of such properties and will inevitably lead to a further substantial increase in the capital value of the asset, further inflating London property prices that are already at record highs.
Second, by increasing the return available to landlords, the incentive to replace stable ASTs with more lucrative nightly lets will be irresistible to many. This will serve further to hollow out communities in Central London and flood neighbourhoods with a transient population who have little or no interest in the community.
A report by Westminster City Council found that where rules are already being abused to facilitate short-term lets the impact on local communities is overwhelmingly negative.
The effects, particularly on mansion blocks, of having daily or weekly changes of occupier will be felt most closely by those who remain living in such properties as their homes. They will be faced with increased service charges for the wear and tear on lifts, corridors and common parts. They will face the noise and disturbance from those who are holidaying rather than working and it is they who will have to deal with consequences if such flats are being used as pop-up brothels, venues for sex parties and other anti-social behaviour as has already been experienced where regulations have been relaxed.
Third, as more landlords chase a return and opt for nightly lets rather than stable tenancies, the number of AST rental properties available is reduced, yet with demand remaining high rental prices inevitably rise, pushing up costs for regular residents and working families.
DCLG Ministers point to the way the internet has changed our lives since the introduction of the rules in 1970s, but the truth is that while the internet has made it easier to find a short-term tenant and therefore created greater demand for short-term lets in London, this is even more reason for keeping the rules to protect communities, not abolishing them.
This week ministers conceded this was a sensitive issue, but still chose to push ahead. Responding to concerns raised by London MPs the Solicitor-General said “…London is a super-city: it is an enormous city and it does have unique circumstances. The Government recognise the necessity of working with the London boroughs to design the provision to ensure we achieve the right balance between increasing the freedoms for Londoners and protecting London’s housing supply. We would not want that to be undermined. We are trying to ensure that speculators are not able to buy homes meant for Londoners and rent them permanently as short-term lets.”
Rightly so, at a time of great housing pressure in the UK, where we are still not building enough new homes to meet demand, adding additional pressure by removing existing homes from the rental market will only serve to add to the problem Londoners face.
If these proposals go ahead without adequate safeguards, renters will lose in higher rents; buyers will lose as prices are pushed even higher and communities will lose as they are hollowed out.
What is trumpeted as a desirable liberalisation of rules which will allow homeowners to make a little extra cash, could in fact be an ill-conceived housing time bomb. The Government has said “measures will be put in place to prevent abuse of such reforms or the permanent loss of residential accommodation” but they have yet to demonstrate how this will be achieved.