As with the awkward play-off between the possession and consumption of cake, there is a conundrum behind most property investment: if you want to enjoy your luxury apartment, you can’t derive income from it — and if you want income, you can’t stay in the property yourself. But there is a way you can nibble your cake and still have some of it: you can rent out your property on short lets to holidaymakers, while staying there in between times.
Traditionally, a holiday let has tended to mean a beach house, ski chalet or dreamy country cottage. Yet increasingly the world is waking up to the fact that there is a growing market for self-catering accommodation in city centres — where huge numbers of holidays are taken.
On the face of it, a holiday let in a city makes more sense than one on the beach or the ski slopes. In many cities, tourism is a year-round business. Moreover, you are not limited to holidaymakers; business travellers, too, often prefer the anonymity of a serviced apartment over a hotel. It’s easier to work and hold private meetings in an apartment rather than a hotel room. Who needs a grand hotel dining room just to come down in the morning and consume an overpriced croissant? And then, of course, there is the huge market in naughty weekends: better done — so I’m told — without a receptionist downstairs taking calls from your spouse.
Holidaymakers and business travellers are not tenants, legally speaking, and do not enjoy tenancy rights. They must pay their rent upfront in full, and if they overstay, they are simply trespassing. And the rates for short lets tend to be much higher than for standard tenancies. Keep your central London flat full of tourists year-round (with a bit of extra hassle for the changeovers) and you could be earning twice as much as by letting to a long-term tenant. Go on to the ubiquitous Airbnb website and you’ll see many investors have reached the conclusion that short lets are the business to be in. In 2010 Airbnb revealed to the authorities in New York that it had 2,652 properties listed in the city; by last year it had 16,483.
So should you be buying a little flat off the Champs Elysées or Times Square, filling it with holidaymakers or bonking businessmen at £250 a night, and still being able to spend a few nights there yourself from time to time? Only if you don’t mind doing battle with some increasingly hostile city authorities, egged on by a protectionist hotel trade (it doesn’t sound right calling it the hotel lobby). The trouble with Airbnb-style short letting is that in some places it is actually against the law.
Until May of this year it was effectively illegal to let a London property on Airbnb at all, unless you had planning permission for tourist accommodation: a 1973 act prohibited the letting of private homes for periods of less than three months. That has now been relaxed to enable homeowners to take advantage of Airbnb legally, though short lets are still restricted to a total of 90 days a year.
The New York Attorney General’s office estimates that 72 per cent of Airbnb rentals in the city violate a 2011 law which prohibits the letting of residential property for periods of less than 30 days at a time. An exception is made in cases where people are renting out spare rooms, so long as the host is living in the property at the time of the rental. The city claims ‘black market hotels’ are costing it $33 million a year in unpaid taxes — normally levied at a rate of 5.875 per cent on hotel rooms.
Paris, too, has taken up arms against short lets. The French capital recently did a deal with Airbnb which obliges the company to pay tourist taxes directly at a rate of €0.83 per person per night. Parisian residents may short-let their homes, but owners of second homes and absent landlords may not do so without a licence. Hamburg has taken a similar line: occasional short lettings of primary residences are allowed, while those of second homes and investment properties are not.
Whether property-owners will take any notice of these strictures — and whether city authorities can really enforce the rules — is another matter. New York has fined some Airbnb landlords, but lost one case when a landlord fined $2,400 had the penalty overturned by arguing that his flatmate was in residence at the same time as an Airbnb guest. So high is the demand for short lets, however, that my guess is cities will start to realise they will be turning their backs on an awfully big tourist trade if they try to close down Airbnb and its ilk — including, for example, the more upmarket onefinestay — in spite of bitter opposition from the hotel trade.