PROPERTY JOURNAL

London failing to track empty homes and short term lets

Empty homes and an unregulated short-term letting market have removed tens of thousands of homes from the market with a massive impact on homelessness in London

Author:

  • Chris Bailey

21 October 2020

When is an empty home not an empty home? What exactly are second homes, and are they really homes at all if they exist within a portfolio of second homes for rent? Does buy to leave empty really matter, or even happen? And if so, how often?

These were among the questions presented to Action on Empty Homes when we started examining the London property market back in 2018. Our latest findings and policy recommendations were recently published as the Pretty Vacant report.

Our examination, funded by independent charitable foundation Trust for London, looked at why the London residential property market is failing to house Londoners at an increasing rate every year, despite a superficially healthy residential development pipeline.

Among the conclusions, the report reveals that the official figure of approximately 25,000 long-term empty homes within the capital doesn’t tell the whole story. Instead, it seems that around 120,000 is a more likely estimate of homes without a primary residential use on a long-term basis. Furthermore, levels of vacancy within newer developments also raised questions.

London’s homelessness crisis

Statutory homelessness has gone up in England for 32 consecutive quarters, which is why even governing party politicians now regularly refer to a housing crisis. As I write, the most recent statistics available, those published in May 2020 for September 2019, show 87,410 homeless households placed in temporary accommodation by English councils at a cost of over £1bn a year. Perhaps most disturbing is that these households included 127,890 children, some housed in notoriously poor quality and cramped conditions in places such as Harlow’s infamous "human warehouse".

For many, this accommodation is less temporary than we might hope, with the London borough of Southwark memorably warning on its website that “Due to the short supply of social housing, households may need to stay in temporary accommodation for over a year”. London boroughs are responsible for over £700m a year of a £1.1bn national bill – all these numbers, of course, are pre-COVID-19. The Coronavirus public health crisis has only underlined housing concerns and emphasised the link between our national housing crisis and wider social inequalities. Thus far, the highest COVID-19 death tolls have occurred in London boroughs that have the most over-crowded housing and greatest poverty, most notably in Newham.

We are faced with a situation where, in spite of the tens of billions of public subsidies poured into supporting new housebuilding by successive governments, the result has been both rising homelessness and lower levels of home ownership. By anyone’s reckoning this can only be described as a failure of public policy.

Meanwhile, an even larger number of people are being pushed towards poverty by the cost of renting other people’s homes. It may be more accurate to refer to these homes as residential property assets.

The private rental sector (PRS) is growing faster than any other part of the housing market. It is often assumed the PRS mainly houses young, single professionals before they find a way to get a mortgage and move into their first homes, as was perhaps the case 20 or 30 years ago. However, we increasingly see families, pensioners and households of all sizes, ages and vulnerabilities facing the challenges and insecurity of renting, while year on year, the cost of rent far outstrips increases in average wages.

Perhaps most remarkably, not only are homelessness and poverty in the PRS on the rise, but the number of empty homes is also rising and have been for three consecutive years. They are not rising fastest in areas of economic decline as might be expected – though many impoverished areas do feature extremely high levels of empty homes and some are rising – but the fastest rates of increase are in the areas experiencing the highest prices and greatest housing demand, London and the South East.

This was the conundrum that lurked in the background of our work on London’s housing market. Housing policy development is a broad-spectrum discipline, ranging from those who see the answer as a universal access to housing, to those who simply want better regulation of a diverse market offering a wide variety of ownership and rental options. Despite this wide range of opinions, it has become clear that representatives across the political spectrum – from laissez-faire conservatives to interventionist socialists – believe that the UK is facing a housing crisis, although there is less agreement on what is the root cause of the problem.

Counting empty homes

In investigating how those most in need of housing continue to be increasingly restricted from accessing homes in London, Action on Empty Homes decided to follow the houses rather than just following the money. We started with the ones no one was living in, on the grounds that perhaps, under different circumstances, these could be lived in. This led us to look at the data on empty homes, on so-called second homes, and on property used as Airbnb lets year-round. We also looked at new build homes built with residential planning permission, purchased as residential but which have never been lived in.

We spoke to all sides of the political debate in London; to academics and campaigners, thinktanks, tenant and landlord organisations, and to the homeless people at the sharp end of London’s housing crisis. The comments of the homeless Londoners we spoke with have been used to illustrate our report and pose questions as to what exactly London’s particular housing problems tell us, about how we are building, what we are building, and ultimately who we are building for. Our conclusions should prompt sleepless nights.

Methodology for reviewing empty homes

Following an international review of policy in comparable city markets across the world, we examined official data on homes without residents. We began to compare the official data to other measures of housing utilisation deemed important in restricting access to housing across the international markets we studied. We looked at how underutilisation interacted with public policy and what the various cities, regions and countries we examined had classified as activity likely to restrict access to housing and thus inflate housing costs. 

This led us to look at forms of investor behaviour which do not require residents to generate returns from residential property. In other words, activity which might take homes out of residential supply. We looked beyond investment in rental housing and traditional notions of buy to leave, where property is purchased simply as a safe store of wealth, allowing its owner to benefit from appreciation in the value of capital invested in dynamic city markets, while the property is unused. While this may be one example of buy to leave, it is too one-dimensional to accurately reflect the full extent of buy to leave in the modern market. Therefore, in addition we began to investigate one of London’s fastest growing forms of property investment – investment in short-let property – facilitated by the growth of whole home Airbnb lets.

We discovered that ostensibly similar boroughs reported widely differing levels of various forms of empty or underutilised housing in the official data. When this data was set alongside commercial measures of short-let market activity, the data diversity increased, raising fundamental questions over the veracity of official data.

The table below places the official data on dwelling stock estimates published annually by the Ministry of Housing Communities and Local Government (MHCLG) alongside data we gathered on the short-term letting market in London from AirDNA, a commercial short-let market online information application.

Among the wide variations between similar boroughs’ data, one number stood out: a great big zero from Haringey. Remarkably, Haringey declared no second homes. But while Haringey had stopped counting these homes without residents – the only area in the UK to do so – other London borough’s data raised different questions.

The Royal Borough of Kensington (RBKC) and Westminster both recorded high numbers of second homes and Airbnbs, though with diametrically opposite proportionate relationships. RBKC’s 8,573 second homes corresponded to 4,769 whole home Airbnb lets, while Westminster’s 3,018 second homes corresponded to over 7,000 whole home Airbnb lets.

This seemed to suggest that the RBKC’s buy to leave wealth investments really were left empty, while in adjoining Westminster, perhaps something different was occurring. Could the fact that whole home Airbnb lets in Westminster were twice as numerous be a clue? Or, was the lower numbers of empty and second homes recorded also related to how the council collected the data and the degree of self-classification available to homeowners?

Furthermore, while Westminster charged a council tax premium on only 30 of its 506 long-term empty homes, RBKC was charging the higher rate of council tax on 524 of its 1,179 long-term empties. In RBKC, one home in ten was classified as a second home. In adjacent Westminster, Britain’s richest borough, the number of second homes recorded was less than one in 40.

Over in Islington, the AirDNA data showed ten times the number of whole home Airbnb lets (at over 3,000) to the officially declared 294 second homes. This meant that in the Council Taxbase data submitted to MHCLG less than one home in 175 in Islington was defined as a second home, while AirDNA showed that across the Borough one in 30 was apparently a whole home Airbnb short-let. This survey illustrated beyond doubt that the official data was not telling us the whole story.

London Councils independent research

As we continued our work on the Pretty Vacant report, London Councils – the cross-party body representing all London boroughs regardless of political persuasion – issued a press release announcing that they estimated that as many as one home in 50 across London – over 73,000 homes – was being used as an Airbnb let full-time and never acquired permanent residents.

Without disclosure on how the official data relates to the commercial data on Airbnb lets, all analysis contains an element of inference. However, Action on Empty Homes’ project team was struck by the fact that the London Councils’ research suggested the problem could be almost 50% worse than our initial estimates of around 50,000 homes sucked out of residential supply by Airbnb to feed Europe’s largest short lettings market.

It is for this reason that our policy recommendations in Pretty Vacant propose a transparent licensing system for Airbnb lets. This would ensure that locally agreed limits can be put on numbers of properties used exclusively as short-term lettings and ensure that such properties are not assumed to be a contribution to residential supply.

In February 2020, tech magazine Wired published an exposé of so-called Airbnb hotels, which rely on misleading listings and complex subterfuge to disguise whole newbuilds given over to short-lets. Typically, one unit is swapped with numerous others via standardised fit-outs and duplicate listings on lettings sites. This story further supported our analysis that Airbnb was not only impacting residential supply significantly but potentially doing so disproportionately in some newbuild developments.

Another feature of London’s housing market is its relationship to the city’s changing skyline. More than 500 mostly residential developments, featuring towers of over 20 storeys, have been granted planning permission in recent years. This starkly illustrates how a city that traditionally featured low residential densities by European standards on a relatively large footprint is changing in response to rocketing land values and increasing buyer – or just as likely, investor – preferences for city postcodes over suburban ones.

Although the majority of those towers remain on the drawing board, those that have been built do not appear to be contributing to increased levels of home ownership.

Historical changes in ownership

London’s tenure mix underwent a dramatic change in the first decade of the 21st century; the proportion of households that own their home with a mortgage fell from 38% in 2000 to 29% in 2011, while the proportion that rent on the open market rose from 15% to 25%. Overall, London’s home ownership rate has fallen in recent decades. However, there are stark differences in trends for different age groups. In 1990, 25% of households in London were headed by someone aged 16-24, and 57% of households headed by someone aged 25-34. But by 2018, these figures had fallen to 7% and 34% respectively. Home ownership rates also fell for households headed by someone aged 35-44 (from 69% to 48%) and 45-54 (71% to 57%). The proportion of households headed by someone 65 or older that owned their own home rose from 49% in 1990 to 69% in 2017.

All of this evidence leads to the conclusion that an increasing proportion of people are being priced out of housing in London, where an average 2-bed home price in most inner London boroughs now exceeds 12 times the average annual earnings, and in some parts the ratio is more than 20 times the average wage. In contrast, Yorkshire Building Society estimated the national ratio to be 8.35 last year.

Home ownership in London, as the statistics above show, is increasingly only possible for the richest Londoners or people who bought several decades ago. This is reflected in the increased proportion of older households owning a home while home ownership both declined overall.

Added to all this, and exacerbating the crisis, is the fact that London’s property market has been increasingly focused on the construction of homes which are attractive as investments, rather than those which are most suited to use by those groups of Londoners in greatest housing need – broadly speaking, families on average or below-average incomes and single people. We start to see why London, while home to less than a fifth of England’s population, is responsible for over two thirds of its homeless families and the associated costs.

But the true cost of homelessness is not measured in hundreds of millions of pounds, it is measured in lost potential, stunted aspirations and unfairly limited educational achievements – a legacy of failure to honour the promise we as a nation traditionally make to the next generation, that they should aspire to a better life than their parents, not a poorer one.

Where are we now?

Initial signs on the social housing front in London appear positive, with Southwark Council announcing in July 2020 a variation in its Aylesbury regeneration scheme with Notting Hill Genesis Housing Group to create 580 new council-rent homes, where largely private sale properties were hitherto planned.

This cannot be a bad thing in a borough which has spent over £80m in the last five years on temporary accommodation for its homeless families, but also boasts the highest number of empty homes in London. Southwark also has around one home in 50 listed as a whole home Airbnb let, a point which local housing campaigners have highlighted recently.

The change in the Aylesbury scheme may be as likely driven by the impact of COVID-19 on potential sales to investors, as by the needs of those at the sharp end of the housing crisis, but it still represents a move towards a reset of our thinking on the priorities for housing supply in London.

We need to stop building houses aimed at investors first, and instead start to build the housing we need to reduce homelessness. This means a return to building social housing at scale, to rebalance a market now drawn inexorably towards creating an ever bigger and more fragmented PRS. It also means taking action on the different types of empty homes which lie wasted across the country and that includes trying to ensure that we aren’t effectively building new ones.

chris.bailey@emptyhomes.com

Recommendations

Our report sets out a simple set of recommendations on how we can change policy to improve access to housing.
  • We need a register of residential property ownership and usage. Only this can help ensure that property is utilised and taxed appropriately and enable local government access to the facts and figures needed to create policy that delivers the housing each area needs.
  • “Second home” isn’t currently a meaningful or useful category and requires reform. It must be established whether these homes are really second homes, used periodically, or are actually just buy-to-leave empty homes or being used as short-term lets.
  • Airbnb and other short-term letting platforms require effective regulation. Short-term lets are taking property out of residential supply, but we can’t tell by how much or control it. Their data must be shared with local government.
  • Planning strategies are undermined if property built as homes is used for other purposes. Local authority planning powers need to be reviewed. It must be ensured, through specific planning criteria, that housing developments prioritise primary residential use and limit homes without residents.
  • Local government needs new powers. Where local councils or elected mayors find abuses and wasted homes, stronger powers and faster action are needed to take effective, timely action on London’s empty homes.
  • Two years is too long to wait to charge premiums on homes that are empty for no good reason, and there are ample exemptions to avoid abuse of existing powers.
  • All councils need dedicated officers to appraise empty homes and second homes, and, where possible, to support owners in bringing them into residential use.
  • Where owners don’t co-operate, councils need enhanced powers to bring property into use, including improvements to Empty Dwelling Management Orders to allow them to be more effectively utilised.

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