Investors who rent their property out on short-stay accommodation platforms such as Airbnb and Stayz in Victoria or Queensland will soon face a tax surcharge.
A 7.5% levy, imposed by the Victoria state government supposedly in an effort to help tackle the state’s rental shortage, will apply to revenue made on the platforms from January 1, 2025.
In Victoria, there are more than 36,000 short-stay accommodation places – with almost half of these in regional Victoria. More than 29,000 of those places are entire homes.
- Victoria’s housing statement, created as part of a suite of housing reforms, states.
These are places that cannot be used for longer-term accommodation or rented out on fixed-term agreements – so it makes sense that they should provide some benefit toward the places that can.
The statement adds that the revenue raised from the levy will go to Homes Victoria, supporting their work building and maintaining social and affordable housing across the state, with 25% of funds to be invested
in regional Victoria.
This also means other local council charges on short-stay accommodation will be removed.
While Victoria’s Short Stay Levy is the first of its kind in Australia, the announcement comes soon after Brisbane Greens mayoral candidate Jonathan Sriranganathan proposed a similar fee.
As part of his election commitment, he has proposed a 1000% council rates surcharge on investment properties that are rented out as short-term accommodation.
This would increase the higher rates from 150% of the standard rates to 1,000% - which represents an extra $10k.
For example, for an inner-city apartment which usually attracts a council rates bill of $1,800 per year, if it is listed on Airbnb or Stayz for more than 45 days, that rates bill would increase to $18,000.
The Greens' proposal would not apply to residents renting out a spare room in their own home as short-term accommodation, or residents renting out their home temporarily while they're travelling.
The Victorian Greens have also asked the government to consider imposing a 90-day per year cap on short-stay listings.
Leader of the Victorian Greens Samantha Ratnam said imposing a levy on short stays alone would raise an insignificant amount of revenue for the state:
For the Greens to support a new short-stay levy in the Parliament, such a proposal would need to be accompanied by capping the number of days a property can be listed and imposing a rent freeze or caps.
Strong short-stay regulations in Victoria would force owners to make homes available to help renters now, not simply increase the price of holidays.
Many property investors are considering renting properties on Airbnb because of the higher rent that can be charged per night.
But speaking to many who’ve tried it, the income is not as easy as it initially seems (nothing ever is, is it?).
Like any short-term rental accommodation, the occupancy rate will determine whether the rent is superior to having a long-term tenant in the property.
In most cases, it is unlikely to be, which means you could possibly have problems with cash flow if you have a month when there is not much demand from Airbnb guests you will still have to pay the mortgage.
There are also a number of costs involved in listing your property on Airbnb including the cost of your time.
Not to mention the new surcharges in some areas as we’ve discussed above.
Unlike a traditional residential tenancy that is managed by a professional property manager, many Airbnb hosts have to invest their own time to market the property as well as to prepare it for guests and clean up after they’ve left, too.
Plus, at a time when Australia’s rental market is in crisis mode and suffering significant undersupply, landlords can get a higher price when renting out their property long-term and low vacancy rates also provide stability knowing that your property will unlikely sit empty at any time.
Difficult and hands-on management, less-than-ideal profits, and a saturated market are turning investors from the one-time disrupter, which was no longer seen as easy money.
Given the stark imbalance between supply and demand, it is unlikely there will be much relief for renters over the short- to medium-term with stock levels unlikely to increase substantially anytime soon.
So any help to free up properties for long-term rent and boost supply will go some way to improve the strain of undersupply that causes the rental crisis in Australia.
- Also read:Everything you need to know about the state of Australia’s property markets in 20 charts – December 2023
- Also read:Latest property price forecasts for 2024 revealed. What’s ahead in our housing markets in the next year or two?
- Also read:Sydney property market forecast for 2024
- Also read:What makes an A-grade property?
- Also read:Common home buying mistakes and how to avoid them
Current policies are not supportive of attracting more private property investors to supply rental accommodation and the future for tenants only looks worse.
Just look at some of the hurdles property investors have had to put up with over the last decade:
- 2014 – APRA’s macroprudential controls throttled the banks’ ability to lend to investors
- 2016 – APRA Limited interest-only lending
- 2017 - the federal Labor Party is threatened to remove negative gearing which last them an election when they tried again in 2019
- 2017 – Removing depreciation claims on existing properties and travel bans to inspect your investments
- 2019 - APRA increased buffers and the lending “floor rate” to 7%
- 2020 - Victorian government's massive tenancy law reforms favouring tenants
- 2021 – APRA lift lending buffers to 3%
- 2021 - QLD government’s Tenancy Reforms announced
- 2022 - The RBA starts raising interest rates.
- 2023 – ACT and WA propose tenancy reforms
Many of these new government policies won’t even tackle half the issue, and some might even make it worse.
Take the Green Party’s proposed rental freeze or cap for example.
Researchers cited by the Greens to push for a rent freeze concluded that cities that experimented with the controversial controls experienced no improvement in affordability.
In actual fact, it just created poorer quality housing as landlords slowed spending on upkeep.
So capping rental income for investors has been proven to translate directly to poorer quality housing stock, and less of it.
Not only will many landlords be forced to spend less on the upkeep of their rental property in order to keep up with rising ownership costs, but many will divest the market altogether.
Yes, it could actually make the level of rental stock trend further downward.
The truth is that there is no easy fix to this rental crisis, unfortunately.
The key issue is a supply problem, and the only way to increase the supply of rental properties is to encourage more private investors into the market by making sure rental laws are balanced and making it easier for more private investors to invest in property.
We are at the beginning of a new property cycle, something that doesn’t happen very often.
Not that I suggest you try and time the market- this is just too difficult, and in truth, you’ve missed the bottom which occurred in early 2023.
But if the market hands you an opportunity like this, why not take advantage of it?
Taking advantage of the upturn stage of a new property has created significant wealth for investors in the past.
Moving forward, demand is going to outstrip supply for some time to come as we experience record levels of immigration at a time when we’re not building anywhere as many properties as we require.
At the same time, the cost of construction of delivering new dwellings will keep increasing not only because of supply chain issues and the lack of sufficient skilled labour but also because builders and developers will only commence new projects if they are financially viable and currently new projects will need to come on line at considerably higher prices than the current market price,
Of course, in due course, consumer sentiment will rebound when it becomes clear that inflation continues to fall and interest rates have peaked.
At that time pent-up demand will be released as greed (FOMO) overtakes fear (FOBE - Fear of buying early), as it always does as the property cycle moves on.
And strategic investors will take advantage of the opportunities our property markets offer over the next couple of years maximising their upsides while protecting their downsides.
We are also going to be experiencing a prolonged period of strong rental growth - the rental crisis will only worsen further, with no end in sight.
Now I'm not suggesting taking advantage of tenants, what I'm suggesting is to recognise there is currently a problem (lack of rental accommodation) and provide a solution.
And rather than trying to hunt down a bargain, focus on buying an investment-grade property in an A-grade location because these types of properties are in short supply but are still selling for reasonably good prices…
Plus they’ll hold their value far better in the long term.
While it might feel counterintuitive to buy at a time when there are so many mixed messages in the media, you can benefit from less competition, low consumer sentiment, minimal downside risk and minimal risk of oversupply.