No short-term lets regulation for now - what could this mean for the PRS?

Licensing of the short-term lets sector in Scotland was due to be introduced next month. However, it was recently announced that the application for licensing has been withdrawn.

With the short-term lets sector set to get back to business over the coming months as COVID-19 restrictions ease, questions about how it should be regulated will persist.

Although regulation of short-term lets in Scotland won't be coming into force this month, new proposals could be launched this summer.

With this in mind, it's important for letting agents and landlords in England to monitor what is going on north of the border as several rental sector regulations - most notably the ban on tenant fees - first emerged in Scotland before being introduced in England.

What was proposed and why is it no longer happening?

From April, councils in Scotland were set to be given powers to license homes advertised on short-term let platforms. However, the plan for licensing was withdrawn in late February in response to strong opposition.

The regulations were set to be piloted in Edinburgh, which has a very active short-term rental market.

The system would have provided local authorities with the means to designate areas where planning permission would be required for properties to be let on a short-term basis. The regulation would also have required stricter health and safety measures in properties.

Opposition to the regulation from Scottish Land & Estates centred on the potential for rules to be implemented nationwide, rather than just in areas with high numbers of short-term rentals. It also suggested the plan did not account for the boost short-term lets provide for local economies.

The Scottish Government - provided the Scottish National Party wins the upcoming election in May - will now put a new proposal to Parliament in June.

If these measures are supported, local authorities will have until April 1 2022 to establish local versions of a short-term let licensing scheme with property owners having until April the following year to apply for a licence.

What is the current short-lets situation in England?

At present, there are no plans to regulate short-term lets at the national level in England.

The sector has experienced huge growth in recent years, particularly in London. Analysis from campaign group Inside Airbnb suggests that there were 88,000 Airbnb listings in the capital during March 2020, a figure five times higher than the number recorded in April 2015.

Last May, the House of Commons Library published a briefing document discussing regulation of the short-term lets sector.

This was set to be followed by a white paper of recommendations from Airbnb, although this is yet to materialise.

The government's briefing said it had no plans to ban the use of residential property for short-term lets, adding that further legislation would be 'overly bureaucratic'.

Instead, the government said it would continue to prioritise a 'non-regulatory' approach to managing short-term lets to promote best practice and encourage improved industry standards.

But although it appears there will be no short-term lets regulation in England for the foreseeable future, this could change if measures are introduced in Scotland.

What are the challenges posed by short-term lets?

Despite some clear advantages for property owners and the tourism industry, several issues caused by the short-term sector have been highlighted by various stakeholders.

Due to the fledgling nature of the sector, there is a lack of data available which makes it difficult to get a full picture of the effect of short-term lets on the wider housing market.

In the government's briefing paper, however, it suggested there is a lack of tax compliance by short-term landlords, as well as local housing and safety issues caused by increasing numbers of short-term rental homes.

It has also been suggested that short-term lets growth could lead to a shortage of traditional lets and rising rental prices. Strict measures to curb this have been seen in cities such as Berlin, where landlords must apply for permits to let their properties out on a short-term basis.

While there are some rules on short-term lets, including an annual 90-day limit on short-term rentals in London, it has regularly been reported that the 90-day rule has been flouted. Greater enforcement of existing rules could be the first step towards wider future regulations.

In the meantime, short-term landlords and platforms are taking steps to self-regulate. There is already a trade body for the sector in place, The UK Short Term Accommodation Association.

Last year Airbnb suggested that a short-term lets registration system should be introduced. A measure of this nature could provide an effective way of monitoring the sector more easily, although there have been no developments in recent months – perhaps due to the slump in activity during the pandemic.

Despite short-term lets regulation in Scotland being off the table for now, it will be interesting to see what happens over the course of this year.

*Neil Cobbold is Chief Sales Officer at PayProp