From the UK to New York City, Let’s Look at the Impact of New Regulations

Uvika Wahi

Updated on:

Ready or Not: Imminent UK Regulations Reopen the Hotel vs. Short-Term Rental Debate

The UK government has recently announced significant legislative changes that aim to strike a balance between preserving housing availability for residents and supporting the flourishing tourism sector. The impact of these regulations on the supply and demand dynamics of short-term lets, as well as their profitability and operational planning for rental managers, cannot be overstated.

The debate between hotels and short-term rentals has been reignited, transcending borders beyond the UK. As it unfolds, it’s clear that the balance between hospitality offerings and housing availability is more crucial than ever, requiring a nuanced understanding and adaptive strategies from stakeholders across the spectrum.

New Short-Term Rental Regulations in the UK Go Into Effect Summer 2024

Overview of the New Legislation

  • Planning Permission Requirement: Properties rented out for more than 90 days per year will now require planning permission. This measure seeks to ensure that homes intended for long-term residential use are not converted into perpetual short-term lets without oversight.
  • Mandatory National Register: A key component of the new framework is the establishment of a mandatory register for short-term lets. This will enable local authorities to monitor compliance effectively and maintain an accurate count of properties operating within this sector.
  • Exemptions for Existing Rentals: Properties already dedicated to short-term letting prior to the introduction of these rules will be automatically reclassified into the new use class, exempting them from the need to apply for planning permission.

Implications for Short-term Rental Owners and Management Companies

Impact on Demand and Supply

  • Potential Reduction in Available Listings: The requirement for planning permission may deter homeowners from entering the short-term rental market, leading to a decrease in the number of available listings.
  • Increased Scrutiny and Compliance Costs: The establishment of a mandatory register introduces additional compliance requirements, potentially increasing operational costs for rental owners and managers.

Profitability Considerations

  • Variable Impact on Revenue: In areas with high tourist demand, properties with planning permission may command higher prices due to reduced competition. Conversely, the added administrative burden could erode profit margins for some operators.
  • Long-term Market Stabilization: By addressing the housing shortage and curbing the conversion of residential properties into holiday lets, these regulations could contribute to a more stable housing market, indirectly benefiting the short-term rental sector by sustaining community support for tourism.

Operational Planning and Strategy

  • Strategic Assessment and Adaptation: Owners and management companies must assess the viability of obtaining planning permission for potential and existing properties, considering factors such as location, demand, and local council policies.
  • Focus on Compliance and Community Engagement: Emphasizing compliance with the new regulations and fostering positive relationships with local communities will be crucial for sustainable operations.

Comparison with European Counterparts

The UK’s approach mirrors similar regulatory efforts in cities like Vienna, Paris, and Berlin, where restrictions on short-term lets have been implemented to combat housing shortages and ensure properties are not left vacant. These precedents suggest a trend towards more regulated short-term rental markets, with implications for housing affordability and community preservation.

Across Europe, various cities and countries have introduced regulations that share common objectives but differ in specifics:

Vienna, Austria

  • 90-Day Rental Limit: From July this year, properties can be rented out to tourists for a maximum of 90 days annually.
  • Objective: To limit the impact of short-term rentals on the local housing market and ensure availability for residents.

Paris, France

  • 120-Day Rental Cap: Paris has enforced a 120-day annual limit for short-term rentals.
  • Registration Requirement: Hosts are required to register with their local town hall to operate legally.

Berlin, Germany

  • Permit Requirement and 90-Day Limit: After initially banning Airbnb, Berlin now requires hosts to obtain a permit and restricts rentals to 90 days per year.
  • Objective: To balance the needs of tourists and residents, preventing housing stock from being diverted entirely to tourism.

Italy

  • Nationwide Considerations: Italy is exploring limits on holiday rentals to curb the proliferation of short-term lets across the country.

Wales, UK

  • Statutory Registration and Licensing: Announced by the Deputy Minister for Arts, Sport and Tourism, this scheme involves:
  • Objective: To address the impact of second homes and holiday lets on local housing affordability.

European Union (EU)

Key Components of the Pending STR Initiative:

  • Unified Online Registration System: At the heart of the EU’s efforts is the establishment of a unified online registration system designed to significantly ease the compliance burden on STR hosts. This system aims to streamline the registration process, making it more straightforward for hosts to adhere to local regulations while empowering authorities with the tools necessary for effective verification and oversight.
  • Enhanced OTA Information Sharing: A pivotal aspect of the new framework is the mandate for Online Travel Agents (OTAs), including prominent platforms such as Airbnb, Booking.com, and Vrbo, to share detailed listing information with regulatory bodies. This measure is poised to enhance transparency across the board, ensuring that all listings comply with the applicable regulations and standards.
  • VAT Implications: In a move to align the STR sector with broader fiscal policies, the EU has also outlined that rental activities will fall under the purview of value-added tax (VAT), effective from January 2025. This adjustment aims to ensure a level playing field within the accommodation sector, promoting fair competition and fiscal responsibility.

Airbnb’s Response to the New Regulation:

Airbnb has recently shared an enthusiastic statement welcoming the European Parliament’s vote on this new EU short-term rental regulation, praising the regulation for its clarity, simplicity, and accessibility, which are expected to benefit hosts by providing them with the information and guidance necessary to comply with local laws effortlessly. Furthermore, the regulation facilitates a smoother data-sharing process between platforms and authorities, thereby enabling the enforcement of fair and proportionate rules. This development is anticipated to make it simpler for hosts to register with their local authority and adhere to the established regulations.

Implications for UK Short-Term Rental Owners and Management Companies

As these regulations take shape, it’s imperative for UK stakeholders to prepare for the impacts:

  • Adaptation to Registration and Licensing Requirements: Understanding and complying with different registration and licensing schemes across Europe will be essential.
  • Operational Adjustments for Rental Caps: Strategies may need to pivot to accommodate rental limits, impacting pricing, availability, and marketing approaches.
  • Engagement with New Compliance Systems: The anticipated EU-wide registration system will necessitate engagement with new digital platforms designed to streamline regulatory compliance.

The Escalating Battle: Short-Term Rentals vs. Hotels

Navigating the Regulatory Maze: A Call for Fair Play

The landscape of short-term rentals (STRs) in the UK, Europe, and beyond is witnessing a transformative era, marked by evolving regulatory frameworks that have stirred a mix of anticipation and concern among industry stakeholders. 

At the heart of this transformation is a brewing debate over the impact of registration schemes and regulatory measures on the STR sector, juxtaposed against traditional hotels. This debate underscores a critical issue: the perceived regulatory imbalance that threatens the operational efficiency and profitability of STRs, raising questions about equitable competition and the sector’s long-term sustainability.

The Registration Scheme Conundrum

Andy Fenner, CEO of the Short Term Accommodation Association (STAA), voices a poignant critique of recent regulatory developments, particularly the implementation of registration schemes. “We’ve been calling for a registration scheme for years, so it’s disappointing that when it finally arrives it completely fails to address the challenges the country is facing,” Fenner remarks. He envisions these schemes as pivotal in bolstering tourism by being more inclusive of all accommodation types, rather than serving as a “half-way house at best.” Fenner’s perspective sheds light on a missed opportunity to leverage the full potential of the tourism industry in supporting local planning and decision-making.

Addressing Misconceptions: The STR Industry’s Battle for Recognition

The perception of the holiday let industry as tourism’s “problem child” is a significant bone of contention. Fenner articulates the frustration felt by many within the STR community, as they believe themselves to have been unfairly cast in a negative light, overshadowed by hotels, and blamed for issues surrounding housing supply and affordability. 

This sentiment underscores the importance of a nuanced understanding of the challenges facing housing and tourism sectors. While it’s critical to acknowledge that short-term rentals (STRs) do play a role in the wider ecosystem, attributing systemic issues solely to STRs oversimplifies the complexity of factors at play, such as housebuilding rates and housing policy objectives. 

It is essential for stakeholders to adopt a balanced approach that considers the contributions and impacts of all elements within the accommodation sector, including STRs, to develop equitable and effective strategies for sustainable growth and housing affordability.

The Transatlantic Debate: The Influence of the ‘Hotel Lobby’

The regulatory discourse takes on a similar dimension in the United States, where the ‘hotel lobby,’ notably the American Hotel & Lodging Association, is criticized for its influential role in advocating regulations that disproportionately affect STRs. Airbnb’s CEO, Brian Chesky, brings attention to this issue, especially with regulations like New York City’s Local Law 18, which significantly reduced the city’s STR supply. Chesky’s insights highlight the need for a balanced regulatory approach that considers the interests of all stakeholders within the accommodation ecosystem, emphasizing the complexities of navigating the accommodation market’s regulatory environment.

Furthermore, the aftermath of Local Law 18’s implementation has provided tangible evidence of the regulatory imbalance’s effects, with Airbnb reporting a surge in hotel prices to record levels. This price increase, attributed to the decreased availability of STRs, signifies how regulatory actions can inadvertently bolster one sector of the accommodation market at the expense of another. A JLL real estate report supports this view, estimating a $380 million revenue gain for hotels in NYC, a direct consequence of the regulatory changes.

Regulatory Impact on Short-Term Rental Market Dynamics: A Closer Look at Demand Fluctuations

Regulatory actions not only shape the short-term rentqal supply landscape but also significantly influence demand patterns. A compelling case in point is the January 2024 U.S. Market Review by AirDNA, which highlights the profound impact of stringent STR regulations, particularly those enforced in New York. This case exemplifies how regulatory environments can dramatically alter market dynamics, affecting both the appearance and reality of demand within the short-term rental sector.

The New York Effect on National Demand Metrics

New York’s aggressive enforcement of its strict STR regulations has had a notable ripple effect across the national short-term rental market. According to AirDNA’s analysis, when New York’s figures are excluded from the United States’ total, the year-over-year (YOY) growth rate in demand escalates from 1.3% to an appreciable 2.1%. This adjustment underscores the significant weight New York’s market carries in national statistics and highlights how localized regulatory actions can skew broader market perceptions.

Urban vs. Non-Urban Demand Dynamics

US Demand Softens in all location types January 2024

Similarly, AirDNA’s report indicates a softening of demand across all locations in the United States. However, a closer examination reveals that if New York’s data is removed from the equation, the demand change for urban locations shifts dramatically from a decrease of -3.4% YOY to an increase of +2.2% YOY. This stark contrast underscores the disproportionate influence of New York’s regulatory environment on the perceived health and vibrancy of urban short-term rental markets nationally.

This scenario highlights the need for a nuanced approach to market analysis.

A Call for Fair and Sustainable Measures

The ongoing debate between STRs and hotels encapsulates the broader challenges faced by the accommodation sector, characterized by calls for equitable regulation and the recognition of STRs as a legitimate and valuable part of the tourism industry. As stakeholders navigate these turbulent waters, the overarching goal remains clear: to establish a regulatory framework that fosters fairness, encourages sustainable growth, and ensures the long-term viability of both STRs and traditional hotels. This journey toward regulatory balance and industry recognition demands collaborative efforts, informed dialogue, and a commitment to addressing the needs and concerns of all parties involved.

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