Best of FT Money 2023: Short-term lets spoil the view in tourist hotspots
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A chunky piece of cod in crunchy batter with piles of chips, freshly cooked and eaten in sight of one of England’s most dramatic harbour views — each year, tens of thousands of visitors to Whitby savour fish fryer Tom Quinn’s work.
It is easy to see why people love his home town. This North Yorkshire seaside gem has it all — a ruined Benedictine abbey on a clifftop, warrens of quaint yards full of fishermen’s cottages, a marina bobbing with boats, a beach, historic and literary connections and lots of festivals.
The Quayside fish and chip restaurant and takeaway is Quinn’s livelihood. But, like many Whitby hospitality workers catering for an estimated 1mn-plus visitors a year, the 46-year-old is priced out of the local housing market. By the standards of the northern hospitality sector, his £33,000 annual salary is pretty good — but too low for “silly money” property prices.
“It would have been nice but we always knew it would be very expensive to live in Whitby,” he says. “They seem to build the houses, then people buy them as holiday homes — people who don’t have any association with the town.”
The Whitby employer
Finding staff is a headache for the Fusco family’s Whitby-based fish and chips business, for which Tom Quinn works. With employees now having to be recruited from as far away as Middlesbrough, 31 miles to the north, commercial director Adrian Fusco has to plan staff rotas around bus timetables or offer lifts. “Sometimes in August we do a 16-18 hour day and then take the staff home.”
On occasions, the buses are so full of tourists that employees struggle even to get on them.
The business, with three restaurants and takeaways in Whitby and one in nearby Robin Hood’s Bay, needs 50 staff all year round and 30 more in summer months. It pays above the minimum wage; its lowest rate is £11 an hour for washing up and fish fryers are on £15-£16 an hour. To help staff qualify for mortgages, it offers annualised hours, balancing out long summer and shorter winter days, rather than zero hour contracts.
It also has five flats in Whitby, bought decades ago, which it rents to employees. “We need the properties for the staff so we wouldn’t holiday let them,” says Fusco.
To tackle the staffing problem, he has just bought a £100,000 chip making machine. The business, profitable on £3mn turnover a year, has also spent £600,000 on premises for the machinery. No staff will lose their jobs but it will mean six fewer posts need filling. Fusco’s is not alone; some Whitby restaurants have had to close or reduce opening hours because of staff shortages.
Fusco welcomes the government’s move towards regulation. “Obviously we need the holiday accommodation and lets, but it does need managing.” Out of season, pubs close early and, he fears, the vibe has gone. “It’s like a theme park. You could say it’s a victim of its own success.”
Like many seaside towns around the UK, Whitby is a property hotspot. Local estate agent Astins estimates a residential property here typically costs about £100,000 more than comparable housing 10 miles north or south. Given that Whitby’s average house price in 2022 was £287,368, according to Land Registry data, this is a premium of about half. Phil Trumper, a Whitby Conservative councillor, ascribes it to a mix of too little housebuilding 20 years ago, plus an influx of cash buyers looking to retire locally, acquire a second home or invest in short-let holiday accommodation.
Quinn and his wife ended up buying a house in Loftus, 13 miles north, for £125,000 almost nine years ago, on a shared ownership rent and equity basis. His daily drive into Whitby can take up to 40 minutes and parking is a nightmare, but the family is settled in Loftus. This is just as well; while Loftus prices have risen a little, Whitby’s have soared by almost £100,000 in those nine years.
The Quinns are the kind of people UK housing secretary Michael Gove had in mind when launching government proposals in April which could give English local councils the power to make property owners obtain planning permission before turning an existing home into a short-term holiday rental.
The policy, Gove said, is intended to help “local people pushed out of cherished towns, cities and villages by huge numbers of short-term lets”. The government also intends to introduce a registration scheme for short-term lets; it is consulting on whether this should be mandatory.
If the measures — the latest to target the buy-to-let sector over the past seven years — come into law as proposed, local tenants, property investors, holiday visitors and communities will all feel the effects. What will be the impact on house prices, the supply of rental homes and on the balance that towns such as Whitby must strike between providing local housing and sustaining its tourist economy?
Growth of holiday lets
At present, English local authorities lack powers and information on local holiday lets. These properties, says Kate Nicholls, chief executive of trade body UK Hospitality, “are operating in a grey area, not fully residential or commercial”. This debate, she says, is about transparency, ensuring a level playing field for businesses and helping communities thrive.
Legislation on holiday lets varies in England, Wales and Scotland but all three governments are moving towards tighter controls.
The Welsh government has gone furthest. It has just introduced the right for local authorities to charge a 300 per cent premium on council tax on second homes and a requirement that to qualify instead for small business rates they must be available to let for 252 days a year and let for at least 182. It has also paved the way for planning controls.
In Scotland, the government has introduced obligatory short-term lets licensing but had to extend the registration deadline to October due to slow take-up. Scottish local authorities can now also have designated control areas where change of use to a short-term let requires planning permission. Edinburgh is the first to adopt this.
Data on the growth of short lets in the UK is patchy — the most recent available Airbnb data, for example, found UK listings grew by 33 per cent between 2017 and 2018. But Covid also boosted demand for second homes and UK-based holidays, while pandemic business reliefs provided an incentive for people to classify their property as a business.
Preferential tax treatment has underpinned the growth of short-term lets, via potential capital allowances towards purchase, refurbishments and furnishings, greater tax relief on mortgage interest, and opportunities to roll over capital gains tax or reduce it on sale.
Holiday lets are also subject to business rates rather than council tax if the property is available to let at least 140 days a year and actually let for 70, which can lead to substantial savings. Under HM Customs and Revenue rules, to qualify as a furnished let a property must be available for at least 210 days a year and let for at least 105.
Legislation now progressing through parliament would give English councils the right to charge second homeowners a 100 per cent council tax premium. North Yorkshire council, which covers Whitby, wants to do this and to introduce a 0 per cent discount on second homes unoccupied or undergoing structural alterations. It expects these measures to generate more than £14mn a year to be spent on affordable housing.
Richard Donnell, research director at UK property website Zoopla, says the government changes being proposed and implemented should help reduce the flow of housing into the short-let market — a trend resulting from the “unintended consequences” of previous policies. “Investors are doing the rational thing in this market. They are trying to find yield and maximise cash flow,” he says.
The requirements for planning permission and licensing for short term lets will “force landlords to think harder. It will probably produce more stability”.
Finding the balance
It is clear many Whitby locals feel crowded out by tourism and upset at the lack of affordable housing. A town poll last June showed 93 per cent (of the 23 per cent of residents who voted), wanted all new-build and additional housing restricted to full-time primary local occupancy, in perpetuity.
“We need the visitors. They’re important,” says Linda Wild, Whitby’s town mayor for the past three years. But she stresses that locals want balance. She welcomes tighter controls but fears they come too late for some streets. “For a community it’s dire. Every Friday we hear the rumbling of suitcase wheels on the pavement. We say to each other, the suitcase brigade are here.”
Over the 20 years to 2021, the share of second homes and short-term holiday lets in Whitby has risen from 8.1 per cent to 19.9 per cent. The population is ageing and declining; consequently, one of its two secondary schools faces closure.
Today, mineral mining on sites near the town is a significant Whitby employer and there is still fishing and some boatbuilding but tourism is vital. “There’s a feeling [locals] are being squeezed out,” says Andy Brown, chair of Whitby’s Hospitality Group, comprising local businesses. But there is a paradox. “Without the tourism industry the town would be a ghost town eventually.”
The best-placed locals are those trading up, such as 37-year-old fisherman Luke Russell. He has just bought a house for nearly £500,000 having sold his former home for £340,000. This was £100,000 more than its pre-Covid valuation. “Getting your foot on the ladder is the key thing,” he says, unloading lobsters from his catamaran Our Henry. “The world is changing — never mind Whitby.”
A turning tide?
The big question is whether the government’s proposed changes will help locals find homes they can afford. Will the measures help reduce high rental costs? And what will they do to house prices in these areas?
Donnell at Zoopla is cautious. “The number of homes to rent in this country has been broadly flat since 2016. To ease pressures for renters you need to grow supply. I don’t see supply changing that much, which means rents will continue to go up.”
The measures may mean that in places with a strong holiday lets market, the competitive pressure when a property comes on to the market will ease. But he adds: “It doesn’t mean prices will fall.”
The only way to help more local people who want to buy, Donnell says, is to make it very expensive for people with high incomes and a lot of equity to come into an area, thus limiting their buying power — and to increase the amount of affordable housing. “The only option is to build more.”
David d’Orton-Gibson, managing director of Training for Professionals, a national consultancy for landlords and agents, says that to buyers from high-priced areas, somewhere like Whitby looks relatively great value. He also points to the need for greater supply of housing. “Shortage of housing is driving our house prices up,” he observes. “We are simply not building enough.”
The short-let investor
“Don’t book with us if you are looking for five stars, large rooms, wall-to-wall carpets, brand new furniture, granite worktops, hot tubs or welcome packages,” says the leaflet tucked into a metal box in a little alleyway off Whitby’s quayside.
In a location where the former homes of impoverished fishermen can now command £1,000 a week in the high season, holiday let property investors John and Jean Tingle are at the value end of the market. Their four cottages are near Whitby’s harbour, in or off The Crag, a tiny alley. Top price is £560 a week for a property which — at a great squeeze — could sleep nine. “Posh people won’t stay in ours,” says Mr Tingle. “They’re paying big money.”
At the more upmarket end of the scale Steve Fawthrop, with three holiday lets in nearby Robin Hood’s Bay, insists it is “a bit of a myth” that short lets costing more than £1,000 a week are rip offs. Letting agents take 20 per cent; cleaners charge £120 a week, maintenance is constant and utility bills pricey. Out of season rents are much lower. Adding to a portfolio now is costly. “You wouldn’t get much for less than £300,000.”
The Covid-induced boom for UK seaside holidays revved up this market. Local postman Steve Davies, who lives with his family in a Victorian terrace with holiday lets either side, was stopped in the street by an investor. “He said: ‘I’ll give you cash for your house right now.’” Davies declined.
Three hundred years ago, Whitby’s network of passages and steeply rising yards were teeming with the big families of fishermen and labourers, living in small cottages but spending much of their time in the streets.
“We bought a house off the last fishermen in The Crag,” says Tingle, 79, a former building trade worker. He and his wife bought the tiny cottage, now their home, for £9,000 in 1980. While it is small it might fetch £150,000 now; other Whitby cottages sell for far more. Agent Henderson is currently offering a Grade 2 listed fisherman’s cottage for £325,000. It has two bedrooms but one is in a little building in the backyard.
The self-employed couple let their properties themselves. “I wish I’d started sooner,” says Tingle. “I could have bought more.” He declines to give their annual income, but says: “We look on them as our pension scheme.”
He is not opposed to a short-lets registration scheme but hesitant about planning controls. “Planning people can be a pain in the arse.”
Due to an editing error, the premium for Whitby houses was misstated: it is around half, not a third, compared to nearby locations.
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