Short-term rentals have surged in popularity over the past decade, with platforms like Airbnb and Vrbo making it easier for landlords to market properties to holidaymakers, business travellers, and short-stay tenants.

Many investors are drawn to the promise of higher rental yields, greater flexibility, and the potential to capitalise on peak-season pricing.

However, the rise of short-term lets has sparked debate about their impact on the property market. Some argue they offer lucrative opportunities, while others warn of increased costs, regulatory challenges, and concerns about local housing shortages.

For landlords weighing up their options, the choice between short-term vs long-term rentals is about more than just income. It’s about long-term sustainability, stability, and risk management.

In this article, we’re exploring the Airbnb effect on property investment, comparing the benefits and drawbacks of short-term vs long-term rentals, and discussing whether vacation rental property investment remains a viable strategy in today’s market.

The rise of short-term rentals: A profitable but risky strategy?

The short-term rental market has grown rapidly, attracting landlords and investors eager to maximise rental income.

However, while the potential for higher profits is undeniable, short-term lets also come with increased risks and challenges that landlords must carefully consider.

What is the appeal of short term rentals to buy to let investors?

Many landlords are drawn to short-term rentals because they offer:

• Higher nightly rates – Compared to traditional long-term lets, short-term stays often generate significantly more income per night, particularly in tourist hotspots.

• Flexibility in usage – Owners can block out dates for personal use or adjust availability in response to market demand.

• Potential for increased income – In high-demand locations, landlords can earn more annually than they would with a fixed long-term tenancy.

What are the challenges of short term rentals?

Despite the potential for higher returns, short-term lets come with notable downsides:

• Seasonal demand fluctuations – Occupancy rates vary depending on travel trends, local events, and external factors like economic downturns or travel restrictions.

• Higher operating costs – Frequent guest turnover leads to increased cleaning, maintenance, and management expenses.

• Regulatory uncertainty – Many local authorities have introduced restrictions on short-term lets to protect long-term housing availability.

The Airbnb effect on property investment

The rapid growth of short-term rentals has had a wider impact on the property market, influencing investment strategies and rental affordability:

• Increased competition in city centres and tourist hotspots – Investors buying properties for short-term rentals has driven up purchase prices in key locations, making it harder for first-time buyers and long-term landlords to enter the market.

• Shortages in long-term rental stock – As more properties are used for holiday lets, fewer homes are available for traditional tenancies, pushing up rents and reducing affordability for long-term tenants.

• Tighter government regulations – In response to the housing crisis, the government is considering introducing stricter rules on short-term lets, such as caps on the number of days a property can be rented out, and stricter planning requirements.

While short-term lets can be profitable, they are also subject to economic fluctuations, regulatory shifts, and operational complexities. For landlords looking for long-term stability, traditional rentals may therefore offer a more predictable investment strategy.

Short-term vs. long-term rentals: A financial comparison

When deciding between short-term and long-term rentals, it’s important to weigh up financial returns, operational costs, and legal obligations. While short-term lets offer higher earning potential, as we’ve mentioned, they also come with greater risks and management demands.

Income potential

• Short-term rentals can generate significantly more income during peak seasons, especially in high-demand tourist areas. However, vacancy periods during off-seasons or unexpected downturns (such as travel restrictions) can lead to financial instability.

• Long-term rentals can provide a steady, predictable income, with consistent payments each month, regardless of seasonal demand fluctuations.

Maintenance and management costs

• Short-term lets require more frequent cleaning, maintenance, and restocking of essentials, increasing operational costs. Furnishings and appliances also experience faster wear and tear due to the high turnover of guests.

• Long-term rentals involve lower day-to-day management. Tenants are responsible for keeping the property in good condition, and maintenance callouts are generally less frequent than in short-term lets.

Legal and tax considerations

• Short-term rentals can be subject to stricter regulations in some areas, including limits on the number of rental days per year and additional licensing requirements. Tax obligations may also be higher, as some local authorities classify short-term lets as businesses rather than rental properties, leading to different tax structures.

• Long-term rentals align with traditional landlord protections and rights, offering more legal security in terms of eviction processes, tenant responsibilities, and tax deductions for landlords.

While short-term rentals can be lucrative in the right conditions, they demand hands-on management and careful risk assessment. Long-term rentals, on the other hand, can offer greater financial stability and lower operational costs, making them a more sustainable investment choice for many landlords.

Vacation rental property investment: is it still worth it?

The short-term rental market – in the right conditions – has long offered a lucrative opportunity for landlords. But economic shifts and increasing regulation are making it more challenging to sustain high returns.

Buy to let investors must therefore carefully assess the evolving landscape before committing to a vacation rental property investment strategy.

Tourism trends and economic pressures

• While demand for travel remains strong, rising inflation and cost-of-living crises are prompting consumers to become more price-sensitive, opting for budget-friendly accommodation rather than high-end short-term rentals.

• Economic downturns can reduce travel frequency, leading to longer vacancy periods and lower occupancy rates for vacation rentals.

• The post-pandemic tourism rebound has stabilised, meaning the initial surge in demand for Airbnb-style accommodation is slowing, making competition fiercer.

Regulatory crackdowns and changing legislation

• Many UK cities are tightening regulations on short-term rentals to protect housing availability for long-term residents.

• Some councils have introduced licensing schemes, restrictions on the number of days a property can be rented out, and higher taxation for landlords operating short-term lets.

• The Airbnb boom has exacerbated rental shortages, prompting the government to consider stricter policies on holiday lets in certain high-demand areas.

Mitigating the risks through portfolio diversification

• Buy to let investors looking to reduce exposure to short-term rental volatility could consider balancing their portfolio by incorporating long-term rental properties alongside short term holiday lets.

• Diversifying across different property types and locations, such as a mix of urban apartments and suburban family homes, could potentially provide more financial stability.

• Some landlord investors convert short-term rentals into long-term leases when market conditions shift, ensuring continued income even when tourism declines.

While vacation rental property investment can still be profitable, higher risks and increasing regulation mean landlords must strategically adapt to changing market conditions.

A balanced approach that includes both short-term and long-term rental properties may offer the best financial security in the current climate, although it will always be crucial to take advice from property investment experts who specialise in the specific areas that you are considering targeting.

The case for long-term rentals, backed by guaranteed rent

Short-term lets may offer the allure of higher nightly rates, but the reality is that long-term rentals provide more stability, lower risk, and less management hassle, especially in an increasingly regulated and economically uncertain property market.

For buy to let landlords seeking consistent income and reduced stress, long-term rental strategies often remain the most reliable investment choice.

Why are long term rentals a strong investment?

Long-term rentals continue to be the cornerstone of sustainable property investment, offering benefits that short-term lets cannot match, such as:

1. Stable and predictable income

Unlike short-term lets, where vacancy periods can be unpredictable, long-term tenancies provide a steady rental stream. This reliable income allows landlords to plan their finances with confidence, avoiding the fluctuations of seasonal demand.

2. Lower management and operational costs

Short-term rentals require frequent guest changeovers, cleaning, and marketing, which add up in terms of cost and effort.

Long-term tenants, on the other hand, take responsibility for day-to-day upkeep, significantly reducing management workload.

Routine inspections and occasional maintenance requests are generally less demanding than the constant turnover and maintenance associated with short-term stays.

3. Compliance with evolving regulations

With local councils imposing stricter rules on short-term lets, landlords can risk financial penalties or even being forced to stop operating their vacation rental altogether.

Whilst the Renters’ Rights Bill will bring in new regulations for long term private landlords which, once they are set in law, will all need to be considered against their effect on a buy to let investment strategy, longer term lets tend to provide a more stable grounding.

Finally, mortgage lenders often favour long-term rental properties, making it easier for landlords to secure finance and refinance compared to short-term lets, which some banks consider too volatile.

The guaranteed rent advantage: Stress-free lettings for landlords

Even with long-term rentals, some risks remain. Tenant void periods, late payments, and ongoing property management responsibilities can still pose challenges.

This is where guaranteed rent schemes provide an attractive solution, removing the common pain points of being a landlord.

A guaranteed rent scheme ensures that landlords receive fixed monthly payments, regardless of whether their property is occupied or not. This provides a stress-free and risk-free alternative to traditional rental agreements.

• No more void periods – Rental income is guaranteed every month, even when the property is untenanted.

• No rent arrears – There’s no need to chase tenants for late payments or face taking court action to get paid, as payments are made by the scheme provider rather than the tenant.

• No management headaches – Day-to-day property management is handled by professionals, removing the burden of dealing directly with tenants, maintenance, and compliance issues.

Is guaranteed rent more secure than short term letting?

In many cases, a long term tenancy backed by a guaranteed rent scheme can be more secure than a short term let.

• Short-term lets rely on occupancy rates – if demand drops, landlords experience immediate financial loss.

• With guaranteed rent, landlords receive consistent, predictable payments, making it a more reliable investment strategy.

• Short-term lets require ongoing marketing, cleaning, and guest communication, which can be time-consuming and expensive. Guaranteed rent removes all of these responsibilities.

Final thoughts: A smarter way to invest in rental property

While short-term rentals have their place, the risks associated with market fluctuations, regulatory changes, and high management costs can make them less attractive in today’s property market.

Long-term rentals on the other hand – especially when secured with a guaranteed rent scheme – can offer landlords financial security, minimal hassle, and a conveniently hands-off income stream.

Looking for financial stability without the usual landlord headaches? Consider a guaranteed rent scheme with City Borough Housing.

If you are a landlord looking for financial stability without the stress of tenant management and regulatory compliance, you would do well to consider a guaranteed rent scheme.

Guaranteed rent offers the best of both worlds – consistent rental income, zero void periods, and full property management, all without the unpredictability of short-term lets.

With City Borough Housing, your guaranteed rent agreement includes full professional property management, tenant sourcing and referencing, day to day tenant liaison and everyday repairs and maintenance as well as regular routine property inspections.

We offer you a fair rental rate, guaranteed for 3-7 years, with no extra charges, and your property returned to you at the end of the agreement in its pre-let condition, allowing for fair wear and tear.

To discover more about our scheme and how it could potentially transform your property investment strategy, and to claim your free rental valuation, you are welcome to get in touch.