In this week's blog, we begin over the pond in New York City and compare its retail rental market with London’s. The problems they have faced in the last year mirror our own domestic rental woes, but on a much larger scale, perhaps this is a glimpse into the future for the UK of options to explore once all options are exhausted.
Avid readers of our blogs will know that our message is build, but building takes time; we know that, and so do the Americans, and that's why, back in September, New York City local law 18 was introduced, forcing landlords to disclose their plans to host units on sites like Airbnb, and seek permission to do so - limiting that market in a hope to create more rental stock in the short term. Their local authorities have described New York as a city in a rental crisis, where one in three are spending nearly half of their income on rent; as it stands in London, you expect to pay around 53%, according to the ONS, and that's rising steeply.
The consequences of what happens in a situation where rents continue to inflate depends very much on your opinion around the concept of gentrification. As a concept, the foundation of that is there will always be someone coming along willing to pay more, driving out the people who can't afford the rent. However, the flaw in that concept is that there is a crux point where the person willing to pay more simultaneously expects more than what's on offer, higher and higher expectations and standards, and then the model breaks; there are no plans for bedsit flats with infinite pools and wine cellars we know of.
Between August and October, the number of short-term rentals in New York plunged by 85%, according to Inside Airbnb. This housing activist group tracks the platform's data, so the law they have created is working, and these units are being transformed back into long-term lets; it's too soon to know if this will have a positive effect on the rental market, but their policy is working.
Drawing comparisons with London, what's interesting about the Airbnb numbers is that even though we are ranked 6th in the world for the number of units on short term lets as a nation, London is the number one city in the world for Airbnb. As of the time of writing, the available listings are well into the six figures, according to Search Logistics, dwarfing the number of rental properties in the market. Looking at the latest statistics for London from the summer, there were only 40,496 rental properties in London as of July; there were three times as many Airbnb's.
Airbnb, founded in 2008 by Brian Chesky, Joe Gebbia, and Nathan Blecharczyk, revolutionised the way people travel and find accommodations. The idea stemmed from a need to make extra money by renting out air mattresses in their San Francisco apartment during a conference. Over time, Airbnb evolved into a global platform where hosts can offer their homes or spare rooms to travellers, offering a more personalised and affordable alternative to traditional hotels. However, it could never have been predicted in 2008 that one day in the future, the model of short-term lets designed to disrupt the hotel industry would be so successful it began to disrupt the very rental market itself.
There have been some attempts to control the trends in London, and the authorities haven't been entirely apathetic; there has always been a 90-day rule for hosts in London stating a property can't be rented out for more than 90 days in a year consecutively or cumulatively, with fines and penalties enforced. What there currently isn't is the ability to ban or restrict usage on any national level or introduce temporary restraining orders against short-term let platforms.
If similar laws were to be brought in here to increase the supply of long-term affordable rental properties in London, it would have to be done in such a way as not to hurt what is essentially a sizeable subset of the landlord industry at a time when smaller landlords are facing sizeable headwinds just operating their businesses successfully. There is evidence of this happening already in New York, with the first set of legal hearings due on October 30th in an instance where the so-called 'ban list' has been ignored.
So, to circle the wagons back around, we still stand by solutions based on increasing supply; the core of our business supports those in that industry, supplying liquidity to the smaller development market, but if incentives to buy are deemed to bid up the prices further, and the time horizons on the supply & build side are too great, all options, however problematic, may need to be explored.
Our Development Finance clients can benefit from facilities up to 70% LTGDV (Up to 85% LTC) from 5.30% plus the cost of borrowing.
For a full criteria breakdown, please email us at email@example.com or call us on 01424 717564.