Short-term lets – licensing scheme and planning control areas: business and regulatory impact assessment

Annex A - Assumptions Underpinning Scenarios 1 And 2 For Local Authority Costs And Fees

1. This annex provides further detail on the assumptions and methodology used to calculate the indicative, average application and renewal fees that would need to be charged to recover establishment and running costs in scenarios 1 and 2 from section F. It is worth reiterating that the actual fees to be charged are properly a matter for local authorities and the information provided in this BRIA is not to be seen as a requirement on local authorities or a commitment by them to charge fees in any particular way or at any particular level. These assumptions have been informed by discussions with local authority licensing officials or other sources of information.

2. Our approach to this costing has been to devise two indicative, hypothetical scenarios for the time and cost involved in processing an average licence application or renewal. Scenarios 1 and 2 are designed to reflect a situation where there are low or high operating costs, respectively. Section F presents the main assumptions. Other assumptions not outlined there are set out below.

Further assumptions

3. We have factored in the cost of staff training. It is assumed that it takes one month to train a member of staff and during this time they are not productive. As a proxy for this cost, we used staff costs for the appropriate level of staff for one month and assumed this cost is spread over five years (assuming that a member of staff may rotate to another area or otherwise leave post, or further training might be required after five years).

4. We have assumed that environmental health officers carry out inspections of:

a) 25% of applications under scenario 1; and

b) all applications under scenario 2.

5. We have assumed that local authorities will need to lease vehicles so that environmental health officers can visit short-term let properties. Public transport (or, in some areas with a high density of short-term lets, walking) may be a cheaper and viable alternative in some instances and this could reduce cost. However, in local authorities where there is a lower level of population density, this would be impractical (i.e. cost more than running a vehicle(s)). We have assumed in scenario 1 that it takes an environmental health officer 1 hour to drive to a short-term let property and a further 1.5 hours to carry out their inspection and write-up; before taking 1 hour to drive on to the next one. In scenario 2, we have assumed that it takes 2.25 hours to drive to a short-term let property and a further 1.5 hours to carry out their inspection and write-up; before taking 2.25 hours to drive on to the next one. The latter reflects a rural local authority where it may take a considerable amount of time to visit each short-term let (given they are likely to be located in more remote areas). We have assumed that it costs £300 per month per vehicle.

6. We have assumed that postage costs for local authorities (making up all of the ‘Other’ column) total £18 per application or renewal. This also includes costs of envelopes, stamps and printing. Administrative staff time of half an hour has been allocated to the task of printing and sending letters to nearby residents to notify them of the short-term let licence application or renewal.

7. We have assumed in both scenarios that it takes, on average, 2.5 hours of licensing officer time to deal with objections about an application or renewal, or licensing committee, and this affects 10% of applications and renewals in scenario 1. In scenario 2 this affects 25% of applications and renewals. In some instances, the time taken might be much shorter, but in others could be considerably longer; this is an average and we would expect the variance to be high.

8. We have allocated half an hour of licensing officer time in both cases to responding to general queries.

9. We have assumed that the time spent by administrative staff and licensing officers (excluding time spent dealing with complaints, queries or committees, or responding to the applicant with licensing information and updating the short-term let register, or notifying residents of application/renewal by administrative staff) increases by 50% in scenario 2 to reflect the extra time taken to liaise with applicants to correct information.

10. It is assumed that monitoring and enforcement activity (including handling complaints) is undertaken at officer level and requires an additional 20% and 40% of staff resource for processing applications in scenario 1 and 2, respectively.

11. We have assumed in both scenarios that applications and renewals are submitted by post and not submitted digitally. Local authorities might adapt existing IT systems, introduce new IT systems or use administrative staff to process incoming paper license applications and renewals. The cost implications of these options would vary significantly. We have assumed that administrative staff process incoming paper license applications and renewals; however, it is likely that larger local authorities, or those with a large number of short-term lets in their area, may be able to substitute this for IT systems that perform the same role as administrative staff more cheaply (so utilise less administrative staff).

Summary of cost and time elements

12. Table A1 below summarises the time and cost elements under scenarios 1 and 2.

Calculation of discounts

13. Table 2 in section F outlined how a discount could be applied to lower the cost of a license application/renewal for low occupancy short-term lets.

14. To calculate this, the first step was to calculate total short-term let fee income from 32,000 short-term lets. Under scenario 2’s application fee, this is equal to £12.1 million. The next step was to establish the share and number of short-term let’s that would fall into the ‘low volume’ category (where the property is let for less than one month per annum) and regular category (let for at least one month per annum). We assume 40% (or 12,800) of short-term lets fall into the low volume category and the remaining 60% (19,200) the regular category. Using this information, and the size of the discount, we can solve for the appropriate fee amount to ensure that the discount is revenue neutral.

15. Mathematically, let the fee be denoted by 𝑋 and assume a discount of 25%. We can find the fee amount by solving for 𝑋:

£12,059,183 = ((0.4) ∗ (32,000) ∗ (100% − 25%) ∗ 𝑋) + ((0.6) ∗ (32,000) ∗ 𝑋)

£12,059,183 = 9,600𝑋 + 19,200𝑋

£12,059,183 = 28,800𝑋

𝑋=£419

16. This results in the standard application fee under scenario 2 now being £419 (for regular short-term lets) and the fee for low volume short-term lets, after applying a discount of 25%, being £314. This does not affect total fee revenue as the discount is revenue neutral.