The short-term lettings market in Scotland is about to undergo a major change in the way it is regulated and operated. New rules, which take effect from this month for new properties entering the market and from April 2023 for existing lets, require landlords to apply for planning permission to operate a holiday let. This permission must be applied for regardless of there being any guarantee of acceptance, which means that substantial fees and legal costs could be incurred without any certainty that the planning application will be accepted.
While many understand that the short-term lettings market has been allowed too much leeway in the way it operates in terms of appropriate safety regulations and the numbers of properties operating in certain areas these changes have the potential to bring the market to a sudden, grinding halt.
In places like Edinburgh and the Highlands, which have the greatest number of holiday lettings in Scotland, the impact will be considerable, this policy could pose substantial problems for local communities.
The risk is that, while reducing the number of holiday lets may produce more long-term residential lettings properties for the community, it will have an impact on the tourism sector which provides local jobs. Reducing the number of available holiday lets also has the potential to reduce the attractiveness of the capital and the Highlands as destinations thereby potentially reducing the number of people employed in the tourism and hospitality sectors. There may be more homes available to rent but there may be fewer jobs for people to do so regulatory changes such as this need to be approached with caution. Every action has a counter action, and the general rule of unforeseen circumstances dictates that you make major changes at your peril.
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There are already signs that holiday letting landlords are selling up or shifting their properties from the short-term market to long-term. These landlords say that the requirements for planning acceptance are not transparent enough. It is not clear what planning permission is being sought and the delays in processing applications (at least nine months in the Highlands) means that the next holiday season would need to be written off. Finally, the costs of submitting an application with no guarantee that it will comply with the rules and be accepted make continuing in the market untenable for many landlords.
The result will be a loss of many thousands of holiday homes into the long-term market or for sale on the open market. This potential increase in the number of properties in the private rented sector is to be welcome, particularly in cities like Edinburgh where demand is higher than anyone has ever experienced before. But if it is accompanied by a downturn in the tourist market next year then many of those people who may have found a home may subsequently be unable to find a job.
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The issue with these changes is the vagueness of the regulation and the rapidity of its introduction. No landlord is going to be able to afford to lose an entire season of holiday lets so the delay in processing these is a key issue in forcing these properties out of the market.
Equally, a planning permission measure which restricts properties without a main door entrance is clearly targeted at Edinburgh which, like most Scottish cities, is largely comprised of tenements. Given that one of the key issues last year during the Edinburgh Festival was the cost of accommodation it is unlikely this will be improved by dramatically decreasing the stock available.
As ever with legislative and regulatory changes there will be consequences for the market, and it is unlikely that these will occur in the way which the politicians expected. The issue, as ever, is supply and demand. If you restrict supply prices will rise, if you increase supply prices will fall. We shall see what happens next summer, but I think that record prices for holiday lettings will be the order of the day in Edinburgh and elsewhere.
By David Alexander