Bed and Breakfast Change of use to a private residence can sometimes be a challenge, especially if you pay the equivalent of business rates in your region. There is an argument that you could still sell the property as is and leave it to the new owner to resolve who could just say I’m not open as often as the previous owners, takes down the signs and uses it as a private residence. It’s more complicated if you pay business rates but there are still a few things to consider.
Check if was the property ever granted planning permission to business use, sometimes it’s just evolved over time, if this is the case and you pay residential rates then just do it.
It pays to be able to show you have actively been trying to sell the property. Clearly placing a viable business on the market for all to see could be injurious to future booking. A specialist portal that enables bespoke marketing such as ListedByOwners could be the answer especially if you retain the marketing data and enquiries you were unable to close.
Accounts that demonstrate non-viability will be of value and supporting data from your local agencies to demonstrate reduced demand, or reduced footfall. These are not always the same, if could be the same footfall has been allowed to dissipate your opportunity, our contention is that often this could be your local authority who could be working against the best interest of free trade.
Finance Considerations
If your property is going to end up as a residential property but your lender has classified you as a commercial mortgage it would be worth getting your lender on board as they will have a different “exposure to risk” once you inform them you no longer take paying guests. This will involve getting off of the various sites you currently rely on for example TripAdvisor, the OTA’s and making sure there are no online listings that describe your property as an accommodation provider with the facility to make a booking.
You may have a period of reduced income so getting off commercial rates to residential rates is going to be important.
Have the local authority played a part in allowing unregulated AirBnB properties to erode your opportunity?
VAT considerations
The unregulated property is unlikely to be paying VAT, compared to the accommodation professional who probably has 20% of VAT included within their rates. HMRC lose out by not regulating those who undercut the market place.
If a business is no longer viable then this adapted article may assist. Source
In our cost-benefit analysis, we find:
- The economic costs Airbnb imposes likely outweigh the benefits. While the introduction and expansion of Airbnb around the world carries large potential economic benefits and costs, the costs to renters and local jurisdictions likely exceed the benefits to travellers and property owners.
- Airbnb might, as claimed, suppress the growth of travel accommodation costs, but these costs are not a first-order problem when it conversely reduces the profit of accredited, insured providers who operate at higher standards. The largest and best-documented potential benefit of Airbnb expansion is the increased supply of travel accommodations, which could benefit travellers by making travel more affordable. There is evidence that Airbnb increases the supply of short-term travel accommodations and slightly lowers prices. But there is little evidence that the high price of travel accommodations is a pressing economic problem anywhere. The price of travel accommodations has not risen anywhere particularly fast in recent years.
- Rising housing costs are a key problem everywhere, and evidence suggests that the presence of Airbnb raises local housing costs by reducing housing stock. The largest and best-documented potential cost of Airbnb expansion is the reduced supply of housing as properties shift from serving local residents to serving Airbnb travellers, which hurts local residents by raising housing costs. There is evidence this cost is real:
- Because housing demand is relatively static (people’s demand for somewhere to live doesn’t decline when prices increase), even small changes in housing supply (like those caused by converting long-term rental properties to Airbnb units) can cause significant price increases. High-quality studies around the globe support the position that Airbnb’s density in any area may have significantly increased rents for local residents.
- The rising cost of housing is a key problem for everyone, especially the first time buyers. Housing costs have risen significantly faster than overall prices (and the price of short-term travel accommodations) since 2000, and housing accounts for a significant share (more than 15 percent) of overall household consumption expenditures.
- The potential benefit of increased tourism supporting the local economies is much smaller than commonly advertised. There is little evidence that area with an increasing supply of short-term Airbnb rental accommodations are seeing a large increase in travellers. Instead, accommodations supplied via Airbnb seem to be at the expense of other forms of accommodation. Two surveys indicate that only 2 to 4 percent of those using Airbnb say that they would not have taken the trip were Airbnb rentals unavailable.
- Studies claiming that Airbnb is supporting a lot of economic activity often vastly overstate the effect because they fail to account for the fact that much of this spending would have been done anyway by travellers staying in hotels or other alternative accommodations absent the Airbnb option.
- Property owners do benefit from Airbnb’s capacity to lower the transaction costs of operating short-term rentals, but the beneficiaries are disproportionately white and high-wealth households. Wealth from property ownership is skewed, with higher-wealth and white households holding a disproportionate share of housing wealth overall—and an even more disproportionate share of housing wealth from non-primary residences because they are much more likely to own non-primary residential property (such as multi-unit Airbnb rentals).
- The shift from traditional hotels to Airbnb lodging leads to less-reliable tax payments to Treasuries. Several large American cities with a large Airbnb presence rely heavily on lodging taxes. Airbnb has largely blocked the ability of these cities to transparently collect lodging taxes on Airbnb rentals that are equivalent to lodging taxes on hotel rooms. One study found that the voluntary agreements Airbnb has struck with state and local governments “[undermine] tax fairness, transparency, and the rule of law.”
- In the UK Local taxation is less well organised – However any short term benefit of increased heads on beads and bums on seats in restaurants is immediately offset by the lack of retail footfall in local high streets when these properties are empty. When fully occupied the high street is visited out of curiosity that is bereft of any economic retail benefit.
- Small Businesses suffer at the hands of local authorities who failed to regulate and apply taxes to the likes of AirBnB relates activity. These essential small business suffer the burden of Business rates, commercial levels of insurance under constant scrutiny by Health and Safety, needing to provide constant Risk Assessments and compliance with Fire Regulations, Trading standards, VisitBritain moderation, TripAdvisor reviews and heaven knows how many other pressures they face.
- Local residents suffer when Airbnb impose on previously friendly communities. The natural balance of friends, community and facilities are disrupted when short-term travellers lacking respect for the locality descend for one purpose to relax and party. The impositions on long-term residents do other long-term damage by imposing parking issues, increased noise levels and a lack of normal and reasonable respect that works in that neighbourhood. The stress placed on local resources such as places to eat, drink and relax that disrupts the locals is unwelcome. The resources that are not funded such as waste collection street cleaning is all unfunded.
- Because Airbnb is clearly a business competing with established accommodation providers they ( both AirBnB and every property should be made to register and report revenues to HMRC in the same way as the accommodation providers they are putting out of business.
Overview of the economics of Airbnb
Airbnb runs an online marketplace for short-term lodging rentals. It largely does not own dwellings or real estate of its own; instead, it collects fees by acting as a broker between those with dwellings to rent and those looking to book lodging.
The perception that Airbnb tries to foster is that its “hosts” are relatively typical households looking to earn supplementary income by renting out rooms in their homes or by renting out their entire residence when they’re away. Critics argue that Airbnb bookings have become increasingly concentrated among a relatively small number of “hosts” that are essentially just wealthy people able to purchase inexpensive properties and to let them out. The significant when compared to having the same funds on deposit in a tax paying bank account.
Potential economic benefits
At a broad level, the potential economic benefits and costs of Airbnb are relatively straightforward.
The key potential benefit is that property owners can diversify the potential streams of revenue they generate from owning homes. Say, for example, that before Airbnb arrived in a city, property owners setting up residential rental properties faced transaction costs so high that it only made economic sense to secure relatively long-term leases. These transaction costs incurred by property owners could include advertising for and screening of tenants and finding alternative accommodations for themselves if they were renting their own dwellings. But if the rise of internet-based service firms reduced these transaction costs and made short-term rentals logistically feasible and affordable for the first time, it could allow these property owners to diversify into short-term rentals as well as long-term rentals.
Another potential benefit is the increased supply (and variety) of short-term rentals available to travellers. This increased supply can restrain price growth for short-term rentals and make traveling more affordable.
Finally, one well-advertised potential benefit of Airbnb is the extra economic activity that might result if the rise of Airbnb spurs an increase in visitors to a city or town. Besides the income generated by Airbnb property owners, income might be generated by these visitors as they spend money at restaurants or in grocery stores or on other activities.
The reality is none of the Online Travel agencies increase footfall, at best they offer ever more diverse routes to stay at the destination moving occupancy levels down at professional providers into unchartered waters where health and safety have far less prominence.
Potential costs
The single biggest potential cost imposed by Airbnb comes in the form of higher housing costs for local residents when enough properties are converted from long-term housing to short-term accommodations. If property owners take dwellings that were available for long-term leases and convert them to short-term Airbnb listings, this increases the supply of short-term rentals (hence driving down their price) but decreases the supply of long-term housing, increasing housing costs for city residents. (We refer to all long-term costs of shelter as “housing,” including rentals and owners’ equivalent rental costs.)
A further potential cost is the negative impact that property rentals (of all kinds) impose on neighbours, for example, noise and/or use of building facilities. Since hosts are often not on-site with their renters, they often do not suffer the consequence of the disruption and hence may not factor them into rental decisions. Of course, one could argue the same issues are also incurred with long-term rentals not arranged through Airbnb. But if the expansion of Airbnb increases total short- and long-term rental activity, or if short-term rentals impose disproportionate issues than long-term rentals, then Airbnb expansion increases the detrimental impact on local communities.
Finally, if Airbnb expansion comes at the expense of traditional hotels, it could have a negative impact on employment. First, since some of the labour of maintaining Airbnb lodgings is performed by the property owners themselves, the shift to Airbnb from traditional hotels would actually reduce employment overall. Second, since the task of cleaning and maintaining rooms and even greeting Airbnb renters is often done by third-party management firms, the shift from the traditional hotel sector to Airbnb rentals could significantly reduce jobs in the area.
If Local Authorities continue to allow AirBnB to impact professional accommodation providers then they should also recognise the need for some businesses to close and therefore not oppose change of use without a considerable body of evidence.
