Kevin McGhee doesn’t want to become a residential landlord but the publican feels he has been left with no choice. With his staff often struggling to find accommodation, the owner of three pubs in Edinburgh is hunting for a two-bedroom flat to buy to accommodate his employees.
McGhee, 42, whose pubs include the Athletic Arms, says the housing crisis has been fuelled by the increasing number of short-term lets in the city.
“Properties that first-time buyers would have bought are being snapped up by Airbnb investors,” he says. “My staff used to pay £800 for a flat and £500 to rent a room in a shared house – now flats are being put on Airbnb for up to £2,300 a month. Traditional landlords and first-time buyers aren’t able to compete as they’re getting outbid.”
With a lack of properties to rent, and those that are available set at rates that are out of the reach of most people, especially those working in the hospitality industry, McGhee’s staff are struggling to find anywhere to live.
“It’s tough,” says McGhee, who has 22 employees. “One of our staff had to travel by bus for one hour to get to work after his landlord gave him notice. He tried to find somewhere closer but couldn’t, and ended up moving down south. Another had to ‘couch surf’ for a good few months. And it’s not because of us – we pay more than the minimum wage.”
Which is why he has decided to buy a property that his staff can rent. “I’ll look for a two-bedroom max, so people can share. That way I can help twice as many staff.”
Although he needs to chat through the logistics with his accountant, he suggests that rent – which he says would cover the mortgage – would be administered separately to their wages, and a contract drawn up where, if staff wanted to leave their job, they would be served notice on the flat.
Ironically, McGhee used to help Airbnb hosts by keeping a key locker box at the pub. “We thought it was a good idea. We didn’t make money from that but people would come into the pub and maybe buy a drink before or after they’d drop the keys off.” However, in protest at the impact Airbnb is having on the city, he has removed the box.
He is not the only employer who feels forced to help house staff. And it’s not only smaller businesses. In the US, Facebook is building 1,700 apartments on a 23.8-hectare (59 acres) plot next to its Silicon Valley headquarters.
It’s all reminiscent of the era when purpose-built developments were created by business people such as George Cadbury for workers at his Bournville factory, and by Guinness in Dublin.
Now the lack of housing means employers are once again having to be creative by trying to secure homes for their staff.
In Scotland, Parklands Care Homes is building 22 two-bedroom flats 20 yards away from a care home it is planning to open in Inverness. They are set to be completed in November 2023 and rented out at £850 a flat. That’s just above the market rate, although there is little to compare it with.
Ron Taylor, the managing director, says the company was forced to “take the bull by the horns”.
He says: “There’s such a shortage of rental accommodation that we’re having to do something about it ourselves. Accommodation that is available is very poor quality with top-notch prices which are unjustifiable. People are turning to short-term lets as it’s higher revenue.
“Inverness is a nice place to live, and we’re competing against NHS staff at a nearby hospital. We wanted to create our own demand so when we get applications from people who are looking to relocate, we can turn around and say there’s accommodation for you, too.”
An investigation by the Observer last year found that in some parts of Britain landlords were moving towards short lets to the detriment of local people looking for homes. This was particularly marked in seaside towns.
Tomas Eriksson, 41, is the owner of newly opened restaurant and events space Waverley House in Margate. He is an Airbnb owner and a local business owner who understands how tight accommodation is in the area.
He has four flats at the top of Waverley House, one of which he is now letting out to staff. “I understand how tricky it is to find accommodation in Margate and how expensive it is, so rather than us taking all the properties as four holiday lets, we have turned one into staff accommodation,” he says.
“People living here are struggling to find accommodation; it’s a real issue. Housing is a huge challenge. I think for the people moving from London to Margate, the biggest issue is finding accommodation.”
Two staff members are sharing the two-bedroom flat. He is charging £300 each including bills – under the current market rate.
“I thought that was a fair price. They’re core people in my team and it’s important to look after everyone,” he says.
Eriksson explains that they both pay individually and rent isn’t tied up in their salary. “It’s part of a larger package to secure long-term staff. They’ve got the same notice period on the employment as they’ve got on the apartment (one to three months depending on the position).”
He is also looking to take on another two-bedroom flat in Cliftonville, also to rent to staff. “We’re trying to be responsible and facilitating accommodation for them. I will find it through an estate agent and charge rent separately. I’ll charge however much it costs me. I won’t make any profit.”
Could he not just give up one holiday let? “They pay way more and we have to look at this as a business first and foremost. We need to cover income for the whole of the building, which, in itself, creates opportunities for staff.”
Tom Oswald, the chief executive of the photo-sharing site ClickASnap, based in Bournemouth, is in the process of buying a property for one of his employees to live in on an interest-free mortgage.
Eliza, 24, has been offered a £200,000 budget and been told she can find a property in an area where she likes and will pay just half the market rent to ClickASnap.
“I want them to make a decision based on where they’re going to be happy,” he says.
He plans to buy another property for a member of staff to live in. “We’re not using it to make money. Buy-to-let mortgages are half the price of a normal residential mortgage, so charging half the market rent is easily done and covers the mortgage. If she chooses somewhere that is unrentable, which is extremely unlikely, then we would have to look elsewhere.”
Oswald says he was keen to step in because of the spiralling housing crisis. “The property market is disgraceful,” he says. “I’ve been in a situation before where just before Christmas I was kicked out by a landlord. If I want a growing, stable business then I need employees to be in stable accommodation.”
He says his dream for the future is to actually build properties for staff to live in. “If we’re buying we are extracting from the existing market. I would prefer to build efficient properties.”
However, landlords need to look at whether providing accommodation for employees may result in them being granted certain rights in that property, in particular security of tenure (ie the right to remain).
David Sheppard, an employment lawyer at Capital Law, says there is a distinction between employees who must live in certain accommodation to perform their job, or as a condition of their employment (for example, live-in carers) and employees who are offered it but could perform the role without it. The former would usually constitute a “service occupancy” while the latter a “service tenancy”. The difference, he says, will have profoundly differing consequences.
A “service occupancy” allows the employer to provide accommodation to the employee without granting property rights. In contrast, under a “service tenancy”, they may have additional protections and rights.
If the employer is a private entity, the employee may have security of tenure under the Housing Act 1988 as an assured tenant. A landlord can only end an assured tenancy if they have a legal reason, or ground for possession.
“The employer, in this case, may be able to rely on the fact that the property was let in consequence of employment but that has ceased, as a ground for possession. However, this will be at the court’s discretion.
“Where the employer is not concerned about regaining possession of the property at the end of the employee’s contract, an arrangement could be set up so that the employment and occupation are treated entirely separately. An employee’s right to occupy the property would be unaffected by a termination of their employment, and will be governed by any agreement and relevant law.”
Sheppard says employers should properly document any arrangement and warns that difficult situations could arise if, say, an employee is dismissed for misconduct reasons but continues to have rights to occupy property owned by their former employer.
“This could create an uncomfortable dependency for the employee, and, similarly, a greater responsibility for the employer if they are considering terminating employment.
“Also, employees may feel pressurised to avoid asserting their rights as tenants, and their entitlement to repairs and safe housing against a landlord who is also their employer.”
Christine Whitehead, professor emeritus in housing economics at the London School of Economics, says employers have been involved in housing their employees for decades – partly because of needing them to live nearby and partly because of shortages.
“What often matters is the terms and conditions – for example, do they have security of tenure or indeed the right to buy? Does it affect their wages; can they get employer help getting a mortgage, etc (which can mean making the salary/job secure.”
She says this is one possibility to help deal with recruiting staff, especially in tourist areas.
The House of Lords is currently running an inquiry into short-term lettings, weighing up whether to propose legislation for a licensing scheme in England.
In Wales, the government is making it less attractive to own a second home with council tax premiums on such properties set to increase to 300% from April 2023, while the number of days holiday homes must be let before being liable for council tax will increase.
A Department for Levelling Up, Housing and Communities spokesperson says: “We’re taking action to combat the adverse impact that holiday lets can have on local communities – particularly in popular tourist areas such as Cornwall and Margate – and the government will be running a consultation on this issue later this year.
“Under the right-to-buy scheme, councils can restrict properties’ use as holiday lets after their sale, while our First Homes scheme is helping first-time local buyers to stay in the communities where they live and work. We’re also investing £11.5bn to deliver more affordable homes in England, with the south-west receiving £1bn of this investment.”
Airbnb says: “The majority of UK hosts share space in their own home. The typical entire home is let for just 30 nights a year, and nearly a third of UK hosts say the additional income is an economic lifeline.
“We take housing concerns seriously, and have already put forward proposals for a national registration system for short-term lets operators, which the government is taking forward, and there are also new rules coming into force in Scotland.”