A leading property management firm has warned UK landlords to be cautious about turning to Airbnb and other short-term online lettings outlets to counter falling earnings.
Apropos by DJ Alexander, one of the UK’s largest family-run property management businesses, believes that financial and regulatory changes have seriously affected the viability of the private rented sector (PRS), resulting in many landlords viewing Airbnb and short-term letting as a potentially attractive option compared to the traditional long-term letting market.
According to Airbnb, it has 223,200 active listings in the UK, generating £854 million with average earnings for owners of £3,100 per year. The growth in some parts of the UK has been considerable, with Edinburgh, for example, now being home to over 12,000 hosts – a number which has doubled in the last three years.
Although Airbnb listings can be found nationwide, there are four key areas where the majority of homes, flats, cottages and other properties are located: namely London, Scotland, the South West and the South East, which collectively account for 73% (163,000) of all listings.
What’s more, these four areas account for 78% (£666 million) of all income generated for hosts in the UK.
David Alexander, joint managing director of Apropos by DJ Alexander, said it isn’t surprising that many UK property owners have considered turning to Airbnb and short-term letting as an alternative to the long-term approach, with income from traditional letting remaining fairly static for some time. Equally, regulatory and financial changes have made letting a far less attractive proposition for many, but particularly for those who are deemed to be ‘accidental landlords’ – often those who have inherited a property or couldn’t sell their home and have decided to rent it out instead.
“Indeed, Airbnb appear to be actively targeting such people to make short-term letting more attractive,” Alexander said. “Although UK average earnings for hosts are said to be just £3,100 per year, projected figures for most towns and cities are considerably higher.”
Earnings vary throughout the country. York, for example, is said to offer potential earnings of £2,083 per month, while in Edinburgh it’s £1,907, in Manchester £1,744, in Liverpool £1,619, in Leicester £1,293, in Birmingham £1,226, in Northampton £1,244 and in Cardiff £1,963. In the capital, meanwhile, average monthly earnings from Airbnb stand at £3,647.
“For many property owners these look like attractive figures and appear to offer a real alternative to long-term letting yields,” Alexander added.
However, while there are undeniable pluses in short-term letting on Airbnb and other websites - daily income is higher than long term letting, there are fewer legislative, financial and regulatory issues, and it can be less punitive, in some circumstances, for borrowing – there are potential downsides and complications as well.
“You must inform your lender if you are making this change [from long-term to short-term]; your insurers needs to be informed; there may be considerable dead periods when you aren’t earning; the maintenance costs will be higher as you have beds to change and properties to clean on a regular basis; and Airbnb, although in the ascendance at the moment, is coming under considerable pressure from numerous local and national governments in the UK and abroad,” Alexander said.
“They have already been banned in some cities and had their activities restricted in various places around the world. You might find that you shift to Airbnb only to find the number of letting days per year becomes restricted.”
In London, for example, there is a 90-day annual limit for short-term lettings unless hosts secure specific planning permission from their local council to allow for more days, while in Scotland Airbnb announced last week that it is planning to bring in a registration system and landlord regulations to allow councils to regulate short-term lets and reduce pressures on local housing and communities.
“With Airbnb you may find that you make more money for the peak five or six months of the year, but the winter is completely dead in which case your earnings may balance out,” Alexander continued. “The problem is that there is more work involved in dealing with 50 guests a year than in two permanent clients staying for a year. It’s a balance and will depend on your expectations, your current experience of where your property income is going, and your location.”
Alexander said the issue for any wavering landlord or investor contemplating the move from long to short-term letting is the level of return, the guarantee of occupancy, the limiting of regulatory and financial restrictions, and the impact on the long-term value of the property investment.
“These are a lot of factors to consider so I would urge landlords thinking of this step to think long and hard before making a leap into the unknown,” he explained. “It will work for some but could be a mistake for others. Equally many landlords could substantially improve their earnings by reviewing their portfolio, their finances, and their individual circumstances. There is still a very good return to be made from the PRS, but it requires a professional approach.”