Victoria’s short-stay levy: Striking a balance

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Keeping pace with global trends, Victoria has unveiled plans to introduce stricter regulations on short-stay accommodation.

25 October 2023

At the heart of this move is the increasing realisation that the booming 36,000 short-stay listings in the state may be eating into the long-term rental market, pulling stock from those in need of permanent housing across most demographics.

States have traditionally tackled this by capping the number of nights properties can be listed. Victoria’s chosen path? A 7.5% levy on short-stay platforms’ revenue, expected to garner approximately $70 million annual increased cashflow for the state. The revenue, earmarked for social and affordable housing by Homes Victoria, is seen as a measure to compensate for the dwellings lost to the short-stay industry.

The mechanics of the levy, set to be operational by 2025, are still under wraps.

It seems that platforms like Airbnb and Stayz will be the ones billed, but they, in turn, will likely pass fees to users of these platforms. While this method centralises collection, it’s not without contention. Platforms have raised eyebrows at the magnitude of the levy, especially given traditional hotels

remain exempt. The state’s rationale: hotels aren’t depleting the long-term rental stock.

The potential implications of this levy are manifold. On one hand, we might witness some property owners, especially those operating on thin margins, pivot towards long-term rentals. Another potential outcome could be investors looking beyond Victoria to locations that don’t impose such a levy. There is an increasing concern, particularly in Victoria, that investors are being continually deterred from keeping money in the local market, with private ownership incentives being deterred at most new turns. Yet, as history suggests, regulatory measures often spread across state lines, especially when they offer potential fiscal benefits for local governments.

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Globally, the compass is undeniably
pointing towards tighter reins
on short-term accommodation.

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Australia’s relatively lenient regulatory approach towards short-term rentals has played a significant role in the sector experiencing an impressive 23% growth over the past year. The COVID-19 pandemic highlighted the tension between short-term and long-term rentals. As tourism paused, many short-term listings shifted to long-term markets, leading to a decline in rents in many areas.

Local councils have been at the forefront of managing short stay impacts. Their tools range from registration systems to differential rates. However, state interventions can often overshadow these local strategies. Globally, the compass is undeniably pointing towards tighter reins on short-term accommodation. The underpinning logic remains consistent: balancing tourism with housing needs for local residents. Yet, the true challenge emerges in enforcement. Even the most stringent regulations can fall flat without diligent implementation.

Throughout Australia, there’s a growing demand for an expanded housing supply to enhance the rental landscape. Yet, with the extensive time required for financing and constructing new apartments, it will be a while before tenants see an increased availability.

On the other hand, policies steering short-term rentals towards long-term usage could offer immediate relief. This shift is crucial, especially in urban areas where new apartments could easily cater to short-term visitors. Similarly, in regional areas, the surge in population intersects with a rise in short-term accommodations.

Housing advocates argue that while policy interventions like Victoria’s are a step forward, they barely scratch the surface of the rental crisis. A nuanced, multi-pronged approach is essential.

Rechannelling short-term rentals into the long-term market might offer a quick fix, but the broader issues—unfair evictions, rental spikes, and a deficit of decent housing for low-income renters—require more comprehensive solutions.

Victoria’s levy is undeniably a bold move, one that aligns with global regulatory trajectories. While it promises to channel funds into affordable housing, the broader question remains: will this levy be a precursor to stronger regulations that strike a harmonious balance between short-term and long-term housing needs? Only time will tell.