Is it time to clamp down on short-term rentals in the regions?

Experts say short-term holiday listings have impacted housing affordability in popular tourist destinations. Photo: Shutterstock
Experts say short-term holiday listings have impacted housing affordability in popular tourist destinations. Photo: Shutterstock

A decade ago many travellers would have been hard pushed to find holiday accommodation in regional Australia beyond the local pub or motel.

But the advent of short-term listing platforms like Airbnb and Stayz [owned by Expedia Group] has led to a proliferation of residential-style accommodation from Byron Bay to Broome.

Housing experts have linked this boom in short-term letting to a shortage of rental housing stock in some communities, leading to fierce debate over whether the industry needs stronger regulation, as seen in some overseas locations.

In the fourth instalment of the Australian Community Media Regional Housing Solutions series, we take a look into the link between short-term letting and affordability, and the current regulatory schemes in Australia, asking whether further steps need to be taken.

Missed any of the series? Catch up below.

Read more:

How do holiday rentals affect housing affordability?

Talk about housing affordability in Australia's regional communities and the conversation often turns to the role of short-term letting platforms, such as Airbnb or Stayz, on the availability of housing stock.

There is a connection between short-term rentals and increasing rental unaffordability in regional communities, but it's not a direct one according to University of Sydney Professor Nicole Gurran.

"It's not as simple as 'Oh, there's short term rentals so therefore rental unaffordability,' the issue is when you've got high demand for housing and short term rentals [in the same market]," Professor Gurran said.

Professor Gurran, who co-authored a 2020 study on the impact of short-term lets on coastal communities in Australia, said that the pandemic had created a "perfect storm" for rental unaffordability.

"People have been able to leave the city to take advantage of better affordability and amenity," she said, adding that people would usually rent in these areas before buying.

"They've moved to areas that already have tight rental markets...Typically outside of the major cities where there's virtually no rental housing."

"So that instantly puts pressure on rents."

At the same time there had been a domestic tourism boom, making it attractive for investors to purchase in these tourist markets.

"We don't know the amount of conversion from permanent rentals to the short term rental market... What we can say is there has been demand from investors to purchase for the short term market because there's often a greater return and if offers them greater flexibility," she said.

Demand from tree changers and the conversion of stock by investors meant that there was immense demand for what little rental stock was available.

"The way it [short-term letting] affects rents is reducing supply," Professor Gurran said.

This used to be less of an issue in tourist communities, where people were unlikely to be permanently based due to the requirement to commute to work, but the emergence of work-from-home policies during the pandemic meant that markets were now facing demand from permanent and short-term renters, Professor Gurran said.

In many coastal communities with tourism-based economies, there has always existed a degree of short-term housing stock, Australian Housing and Urban Research Institute (AHURI) managing director Dr Michael Fotheringham said, but the emergence of electronic platforms had made renting a property in this way more accessible for a new generation of landlords.

"It simplifies the process for a property owner or investor; the ease of use of using one of those online platforms, than perhaps if you're dealing with a traditional holiday-let agency," Dr Fotheringham said.

This ease of use, combined with the number of tax concessions available to property investors, had seen the number of landlords opting to list their property's on short term letting platforms "explode" in recent years, Dr Fotheringham said.

Research conducted by AHURI in 2018 found that short-term rentals had a moderate impact on inner-city rental prices.

Dr Fotheringham said that in smaller regional communities, where the number of houses available for rent was already less than in big city markets, it didn't take many houses being converted to short-term lets to have an impact on supply.

"What we've seen in recent years in certain locations the impact of short-term rentals on the availability of housing has had a significant impact [on prices]," Dr Fotheringham said.

"[The problem] seems to be either in the tourist areas of major cities like St Kilda or Bondi, or on smaller cities, particularly where tourism is a strong industry [such as those in] Tasmania and coastal communities where there's relative short housing supply," he said.

Dr Fotheringham said that the conversion of properties to the short-term letting market exacerbated existing low rental vacancy rates in certain communities, singling out Tasmania as an example.

"What we've seen from across the country is really low vacancy rates - there's not enough rental housing available," Dr Fotheringham said.

"We've been seeing that in Tasmania for a number of years now."

The boom in tourism to Tasmania had seen investors, both from within the state and from the mainland, purchasing property in order to rent to tourists.

"Tourism has grown immensely there in a relatively short period of time and the timing of that has really coincided with the growth of short term letting platforms," Dr Fotheringham said.

"We've certainly heard of people purchasing property to rent as short-term accommodation," he added.

Dr Fotheringham said that Tasmania's tourism boom had coincided with the arrival of short-term rental platforms. Photo: Shutterstock

Dr Fotheringham said that Tasmania's tourism boom had coincided with the arrival of short-term rental platforms. Photo: Shutterstock

But Expedia Group's director of government and corporate affairs, Eacham Curry argued the impact of the short-term rental market on affordability was overstated, with price movements limited to the luxury part of the market.

"Its impact is largely on the higher end rather than the affordable end of the accommodation spectrum," Mr Curry said.

The reason for this was "obvious," Mr Curry said, with people having higher expectations of the properties they holiday in than those they rent on a permanent basis.

"Those kinds of properties [on Expedia's Stayz platform] are never going to be part of the affordable housing stock," Mr Curry said.

Mr Curry said that where housing affordability is impacted, this is outweighed by the jobs that tourism brings to the region.

"While there is a nominal effect on the overall cost to the housing market as a result of short-term letting, it's more than offset by the economic benefit it brings but that doesn't mean there's not an issue [with housing affordability]," he said.

But rather than pinning the blame on short-term letting, Mr Curry said that a lack of housing supply was the core issue impacting affordability.

"Where they know that there is a degree of pressure it's in places like Hobart, where there is a distinct lack of housing stock," Mr Curry said.

"Seeking to try and impose regulation because you think short term letting is the issue is not going to fix the issue," he added.

Instead, cities like Hobart should be re-evaluating their development policies to encourage new housing stock, Mr Curry said.

How many short-term listings are there?

Short-term rental data and analytics company AirDNA tracks the number of short-term listings on platforms including Airbnb, in markets throughout Australia and overseas. Its figures include entire homes as well as shared listings, where a single bedroom in a house might be available for short-term rent while the owner remains in place.

The latest figures show that while some popular holiday destinations such as Ballina and Orange in NSW had experienced a slight increase in listings since 2019, others such as Victoria's Surf Coast and Byron Bay had seen a decrease.

Dr Fotheringham said that a number of listings had been returned to the private rental market at the beginning of the pandemic, as lockdowns restricted domestic travel, but this had since shown signs of reversing

"But once those 12 month leases were up they just went [back to the short-term market]," he said.

He said that he was concerned that once the pandemic was over there would be a "stampede" of housing stock returning to the short-term market.

Professor Gurran said that tracking the number of Airbnb rentals, and therefore keeping tabs on how many permanent rentals were being converted, was incredibly difficult outside of the areas that mandated registration of rentals, with most platforms reluctant to divulge figures.

Figures from a 2018 report compiled for Stayz by Acil Allen Consulting put the number of listings into context against total housing numbers in major tourism destinations.

Short-term listings in Tasmania accounted for 2.9 per cent of all residential dwellings, the highest figure of any state or territory.

In NSW, short-term listings accounted for 2.7 per cent of residential dwellings, while in Victoria they accounted for 2.1 per cent.

Mr Curry said that these figures showed the "truth" about just how much housing stock was being converted to short-term rentals.

What are the current rules, and are they working?

Australian jurisdictions have developed a patchwork approach to short-term rental regulation.

In some states, including NSW and Tasmania, short-term letting landlords must register their properties on a state databases. This is already in force in Tasmania and is set to come into force in November in NSW.

In NSW, whole-property listings are restricted to being listed for a maximum of 180 nights in a year in Greater Sydney and select regional areas.

These areas include Newcastle, the Bega Valley, Ballina and Dubbo.

Short-term rental of entire properties in Byron Bay are limited to 180 nights a year. Photo: Shutterstock

Short-term rental of entire properties in Byron Bay are limited to 180 nights a year. Photo: Shutterstock

Professor Gurran said that the NSW rules had overridden some more stringent local council rules, with the regulations applying a blanket approach.

In Tasmania, short-term rental landlords need to apply for a permit in order to rent their property, with conditions restricting approval to properties in suitable development zones and those not in a strata arrangement.

Hobart City Council passed a motion in August seeking to ban the issuing of new permits for short-term lets in the city, as well as prohibit whole-property holiday rentals in specific areas of the city.

There are 971 total short-term listings in the Hobart local government area, 335 of which are not the host's primary residence according to the council.

In a release on the council's website, City Planning Committee Chair Helen Burnet said that the trend of converting residential homes to short-term lets was a concern.

"We know housing affordability in Hobart is reaching crisis point and we have a responsibility to look at actions that could help address this," Cr Burnet said.

"A study has recently found that Hobart had lost around 12 per cent of its long-term rental properties to visitor accommodation in just a couple of years," she said.

The plan must receive approval from the Tasmanian Planning Commission before being enacted.

Regulatory efforts need to strike a balance

Mr Curry said that neither night caps or the banning of new permits would be an effective way to improve affordability.

"There are four main reasons why governments want to regulate short term letting and they are the perception about its impact on affordability of housing stock, the availability of housing stock, the impact on community amenity and the impact on local government resources," Mr Curry said.

"Night caps don't address any of it... If you ban it for 180 nights there are still 180 nights it can be let," he added.

Dr Fotheringham said that Australia's Airbnb regulations were moderate when compared to some places overseas.

In Barcelona, a proposal was recently made to limit the number of nights a property could be rented out in a year to 30, while in California, U.S.A. the City of Irvine has banned short-term rentals entirely in residential districts.

"Australian jurisdictions are probably middle of the pack there are parts of the world where very strong restrictions have been imposed, other parts pretty lax there's always a balance to be made here," Dr Fotheringham said.

He said that for those communities considering regulating short-term rentals, an outright ban was likely untenable.

"For people who have already invested in a property with that model in mind they've done their sums based on a particular revenue model and wiping that out would need to be addressed with care. There's not actually a strong argument that people leasing out a holiday house is a bad thing [on an individual basis] - it's really about the whole of market effect," he said.

The first thing communities should do is establish a system to identify how many properties in the local market were being used for short-term rentals, and what proportion of housing stock this represented.

"Then you can start to say 'lets have a cap on it', saying we need to have 30 per cent [or] a certain proportion of the housing needs to be available to live in, it needs to be available for permanent rental for people who work in the area to live in," he said.

"One of the [other] options is only making short term available on new supply and existing housing has to be permanent... Either way you're preserving an amount of housing that's sufficient to maintain that local community."

Another option could be tweaking federal tax incentives, such as negative gearing or deductions, to apply only to permanent rental stock.

"It would be entirely possible to have different incentives around the rental market," Dr Fotheringham said.

Professor Gurran said that there was no "one right way" to impose regulation, with the issue being how well the rules are enforced.

"I don't think the research anywhere has shown one method is better than another," she said.

"The principle has got to be that in high demand housing markets residential housing needs to be used for residential purposes, but the way you implement that really depends on how you intend to enforce it," she said.

She said that the 180-night cap in NSW was unlikely to be effective because it meant that a property owner could rent out their listing every weekend in the year with days to spare.

"You'd need to have a much tighter nightly cap if you were trying to preserve the homes for housing," she said.

Outright bans on properties being listed as short-term rentals would not result in a return of listings to the market, Mr Curry said, and would also raise issues concerning property rights.

He said that while some owners have specifically bought properties to list as short-term rentals, others only do so to assist in maintaining their holiday home.

"There are plenty of people who own a secondary property as a holiday house and they seek to rent that out to offset costs," he said.

"What's more likely to happen [if short-term letting is banned] is they'll stop letting that property out [and] they'll keep them for themselves."

Dr Fotheringham said that it was important that short-term letting be addressed as part of a broader attempt to improve housing affordability for key workers in regional communities.

"If you can't keep the people who work in cafes in town it's very had to run a tourism system," he said.

Mr Curry agreed that tourism and rental affordability worked "hand in glove" but argued that there wouldn't be any tourism jobs in the community if people couldn't afford to holiday there.

"If you don't have people visiting because there's no affordable accommodation then barista aren't going to be employed," he said.

"If you make it harder for people to come on holiday there and spend there tourist dollars there, you'll certainly make it harder to bring those jobs to the community."

Airbnb was contacted for comment for this story but a representative was unavailable for interview.

In a statement to Australian Community Media, Derek Nolan, Airbnb's Head of Public Policy for Australia and New Zealand said that hosts on the platform "help drive economic growth and job creation, with many local businesses relying on the valuable tourism dollars spent by Airbnb guests".

"Housing availability and affordability is an extremely complex issue with a range of contributing factors, such as long-term population movements, supply growth and broader economic conditions. Short-term rentals generally comprise only a small percentage of the overall housing market," Mr Nolan said.

This story Is it time to clamp down on short-term rentals in the regions? first appeared on Newcastle Herald.