Council short-stay rental cap plan scrapped as government to introduce levy

The City of Melbourne will call on the state government to provide concrete evidence of how its policy to introduce a short-term accommodation rental levy would address the housing crisis.

The move comes as the council had no option but to pause moving forward with its proposal to cap the number of days a property can be rented out for short-stays as it would be trumped by the state government’s plan to implement a 7.5 per cent levy on short-stay bookings in Victoria starting January 1 next year.

The council had been working on its own policy since last year amid growing concerns that short-term rentals, which involved more than 4100 residential properties in Melbourne (the biggest short-term rental market in the country), was significantly impacting housing supply.

But the proposed policy was put on the backburner at the council’s June 11 Future Melbourne Committee meeting after recognising the state government’s levy on short-stay accommodation would effectively remove the power of local government to make laws to also regulate the same residential properties.     

A motion was, however, unanimously supported by councillors to continue to engage with the state government as the levy was finalised and to monitor its impact in achieving the council’s goal of relieving a tight housing rental market.

In addressing the meeting, Deputy Lord Mayor Nicholas Reece said short stays were having a direct effect on housing affordability, noting “renters across Melbourne are feeling the squeeze of higher living costs [with] only four per cent of rentals costing less than $400 a week.”

“We recognise something needed to be done and we developed a local law that’s almost ready to go, which, if enacted would see the City of Melbourne bring about a charge for short stays as well as implement a cap on the number of days that a property can be used,” he said.

There are fundamental issues with the housing market across this country, and Melbourne is no exception. A significant portion of the short stays are listed for month-long stays at inflated prices well above market rent, which then puts extra pressure on their traditional rental market.

Cr Reece said the council’s research had shown that a regulatory approach, not a taxation approach, was “the better way to go to get the public policy outcome, which is more houses coming back into the rental market, meaning more Australians will have a roof over their head”.

“We encourage the state government to release the policy work that they’ve done on this in this field … let’s put their policy evidence alongside the work we’ve done and see which is the most compelling and so then Victorians can have certainty that the approach that is being taken by the government is the right way to go.”

Cr Reece added, “in the event the Victorian Government does get the passage of the new tax through the Victorian Parliament, we would ask that any revenue raised in this municipality is returned to this municipality to help us with housing.”

The council’s motion will also see Lord Mayor Sally Capp write to Treasurer Tim Pallas to ensure the levy legislation included a register of the location of short-stay accommodation properties and the days each are rented out.

Airbnb Australia and New Zealand head of public policy Michael Crosby said it supported a sustainable and evidence-based regulation of the short-term rental sector.

“Something needs to be done about housing – more homes need to be built – and we believe a small levy, paid for by the guest, that is funnelled into affordable housing infrastructure projects is a fair measure to help address the issue,” he said.

“There is no evidence of caps or bans working – you only need to look to New York where we have seen short-term rentals effectively banned without any improvement in rental availability or affordability while costs of hotels have soared.”

Mr Crosby added the state government was best placed to manage the sector “rather than 79 local government areas around Victoria coming up with their own approach.”

“It is important to get the balance right, so the core issue of housing affordability is addressed, without jeopardising the economic benefits that flow from short-term rentals, with Airbnb contributing billions to the Victorian economy and helping support tens of thousands of jobs.”

Also speaking last year, Strata Title Lawyers principal Tom Bacon said the new levy did nothing other than “further legitimise and entrench the practice of short-term letting in Victoria for 365 days of the year.”

“Let’s not mince words here – the new tax does nothing to curb the popularity of Airbnb, nor does it do anything to improve the liveability of neighbours and owners’ corporations (OCs) that have a desperate problem with the noise and disruption of amenity that short-term stays bring with them,” Mr Bacon said.

“The new 7.5 per cent tax will be passed on to guests staying in the accommodation. The tax is modest enough to not be too expensive to dissuade customers. Airbnb know this, as do the hosts. As does the Labor government. It will simply be business as usual.”

RMIT’s Centre for Urban Research Dr Laim Davies, an expert in affordable housing, primarily in rental policy, said he had reservations about whether a proposed levy on short-stay accommodation would impact the rental market or affordability, particularly in the CBD.

“Even if you got all 4000 (short stay properties) into the system, that's not going to flood the market enough to reduce prices,” he said.

“I guess we've got a question of how do we regulate this, and I think that the current approach has been we don't regulate it and we just assume that it'll sort itself out. And I don't think that's good enough - I don't think that is actually working.”

Dr Davies said another question was how the government wanted to use residential housing stock, and if it was “for housing people on permanent secure basis, should we be allowing this in a free market way at all?”

“I think that maybe we should change the planning regulation and say if you want to open a bed and breakfast like any other form of business, you need a planning permit and that we're not going issue planning permits in areas that have a rental shortage,” he said, adding it would be a “more legible, longer-term approach”.

In Victoria, businesses covered by accommodation regulations are those accommodating more than five people, including bed and breakfasts, hotels and motels, guesthouses, self-contained accommodation, and farm stays.

Dr Davies said in terms of the City of Melbourne there would be a “variety of impacts on to the residents and the local housing markets” if short stays were to remain.

“We probably don't want them here. We have a really strong hotel sector, we have hostels. Maybe that's what we should be trying to encourage people to stay at.” •