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Short term rentals and local housing markets

Over the last five years Australian cities have witnessed a massive boom in apartment building, coinciding with an explosion of online holiday rental listings vial platforms such as Stayz and Airbnb. This has created a perfect storm.

Rising complaints about tourists in residential apartments and homes prompted a NSW Parliamentary Inquiry into the Adequacy of Regulation of short Term Holiday Letting (1). Since the Inquiry concluded in mid 2016, Sydney’s Airbnb listings alone have grown from around 15,648 in January 2016 (2), to reach a total of 24,038 homes by April 2017 (3). Over approximately the same time, 24,469 new apartments were completed in Sydney (4). These figures are not connected, but highlight the changing ways that homes are being designed, financed and used in high density urban and suburban settings.

The proliferation of online holiday rentals in particular have not been planned for, as highlighted by the NSW Parliamentary report which found current planning regulations “fragmented and confusing”. Short term rental accommodation is not defined under NSW planning legislation, and the legality of a range of “home-sharing” practices now enabled by online platforms such as Airbnb remains unclear.

In addition to traditional short term holiday lettings (whole dwellings which are solely reserved for holiday accommodation), online platforms allow the listing of primary residences when occupants themselves are travelling, as well as rooms, and shared rooms.

The permanent or frequent letting of whole homes is regarded to be most problematic, but holiday rentals have long operated in coastal towns and in tourism regions, typically without the need for special planning approval. The sudden appearance of tourists in urban and suburban buildings and neighbourhoods, particularly in inner Sydney and Melbourne, has attracted
particular public attention.

Echoing concerns in high density cities of Europe and North America, residents complain that tourists generate increased noise, rubbish, traffic and parking congestion and are prone to loud and drunken behaviour. There is also wider disquiet about the increasing presence of visitors, an intangible transformation of local neighbourhoods. This impalpable change— described by some scholars as tourist-driven gentrification, arises when permanent homes are converted and residents displaced by holiday accommodation.

The conversion of permanent rental housing supply to short term accommodation has been endemic in New York, London, Berlin, Barcelona, San Francisco and Vancouver. In these cities governments have cracked down heavily on Airbnb and other online platforms to prevent affordable and rent controlled units in particular from being used for holiday accommodation. We don’t have nearly as much affordable housing to protect in Sydney, although the sell off and subsequent listing on Airbnb of former public housing in Millers Point was particularly poignant.

Our own analysis shows that general pressure on already tight rental vacancy rates in high demand suburbs of inner Sydney will be exacerbated if online holiday listings of whole homes continue to grow (5). Our study found that in central Sydney frequently available Airbnb homes amount to around one and a half times the rental vacancy rate (the proportion of rentals available for local households to rent at any one time), and nearly four times the number of rental vacancies in the Waverly Council area, which includes Bondi.

In a city trying to beat its affordability crisis by building new supply, it seems counterproductive to be leaking existing or new housing stock into the holiday rental market. But rather than launch a New York style crack down, the NSW Government has opted to tread lightly for now. The NSW Government’s long awaited response to the Parliamentary Inquiry has promised “broad consultation” involving industry and the community. This consultation, supported by an “options paper” will identify “appropriate regulations” that enable the sector to “continue to flourish and innovate whilst ensuring the amenity and safety of users and the wider community are protected”.

It appears likely that the “options” will involve amendments to planning laws to clarify that principle residences can be rented for up to a specified number of days without the need for further planning approval, and that short-term letting of rooms where hosts remain present will also be permitted. Short term letting of empty houses (i.e. homes which would otherwise be vacant) may also be permitted with no or minimal need for planning approval, subject to “impact thresholds”.

The main shift in the Government’s position appears to be recognition that strata communities need more tools to manage short term rental accommodation in all its forms. The cautious approach may also reflect the fact that internationally, attempts to regulate online holiday rentals have had limited success. Despite New York’s ban on short term holiday rentals, which now extends to the advertisement of these properties, Airbnb listings in that city have continued to grow.

However, in some cities, and usually following legal action, Airbnb has agreed to help implement local rules, for instance, by collecting and remitting applicable tourist taxes, or by blocking bookings once a threshold is reached. Such an arrangement has been introduced in London, where Airbnb has established a “day counter” which automatically restricts bookings beyond a 90 day calendar year threshold, unless the host has obtained planning permission to operate a holiday rental property.

It is too early to know whether this action will operate to curb London’s growing conversion of permanent rental accommodation to tourist accommodation or simply result in landlords turning to other online platforms (such as, but the intervention represents an important first step.

The NSW Parliamentary Inquiry and Government response also anticipate greater use of voluntary and industry codes of practice as well as market based forms of regulation (for instance, where users rate each other). Airbnb itself is piloting a “Friendly Building Program” in the US, where owners’ corporations are able to take a percentage of income from Airbnb bookings and set specific policies (such as blackout dates).

Market based regulations and voluntary codes may be feasible in a sector which is highly conscious of branding and public image. The NSW Government’s default position appears to rely on existing local government powers to act in relation to noise or other complaints, while potentially empowering strata communities to set and enforce their own rules.

However, these individualized and market-based approaches may undermine strategic planning strategies designed to cluster tourist accommodation near facilities, services, and attractions. Nor do such approaches address the potential impacts of short-term rentals on the availability and cost of permanent rental housing. The NSW Government hasn’t said much about housing affordability, promising only to monitor the issue with reference to national visitor survey data which record accommodation trends.

In a country and city gripped by a crisis in affordable housing supply, the omission of any concrete commitment to defend permanent rental housing from conversion to holiday accommodation, and indeed to protect renters themselves from sudden eviction, at least in high demand urban locations in and around Sydney, is a key concern. It would seem that regulators in NSW and many other states in Australia are out of sync with their international counterparts, who have made a clear distinction between
home sharing and the loss of rental supply from their permanent rental

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Snobs, Cities and Sacrifice

I love Sydney. Even though I am Melbourne raised and eschewed Sydney as a good Melbourne boy should I fell in love in 1985 and moved there in 1986. I rented a 3 bedroom federation cottage in Birchgrove with harbour views from the kitchen sink, I caught ferries to work and play, it was 22 degrees in the middle of winter. I left Melbourne in snow and the train brought me up on a full moon with dazzling views of a frozen highlands. It was fun and I could afford it. Not anymore.

Sydney had the glitz and glamour, but now had high culture and a decent football team (AFL of course), great food, good nightlife, new horizons. Sydney felt right, but my Sydney didn’t really extend beyond Ashfield to the west, North Sydney to the north, the airport to the south and all the way east to the ocean. I am a bit of a snob when I define my Sydney. It’s viewed through a lens from a different time. When I lived there the bulk of the lower-priced rental was actually in the inner city. This has, of course, changed, and low and moderate income households don’t rent—or live—where they used to.

I left Sydney in 2002. We could never afford home purchase, my parents were ageing and we figured we’d seen Sydney at its best. Fifteen years in midlife was great but how would the rest pan out? Overall the move has been good, we’ve paid off a house we now own, have good friends, we now have grandchildren that add extra spice. Would that have been possible if we’d stayed in Sydney?

True the humidity of Brisbane and those extra few degrees sometimes get to me and the food and culture up here improves without reaching that international standard, so every time I fly in to that big bold beautiful city that Sydney is, my heart still skips a beat as I take in the glorious vistas and I wonder… Then I realise we were paying $250 per week for a two-bedroom shop top flat in the heart of Enmore. While not flash it was well located; while noisy it had 50 restaurants within 200 metres, public transport on tap and a gastro pub across the road. It had room for our cat and even a small plot of backyard and a part of a garage. What would it cost now?

Well, based on our recent Rental Affordability Index (RAI), we would need a household income of $150,000 per year for the rent in that area to be moderately affordable, and that would mean the rent for our old flat would be about $800 per week. Sydney has become ridiculous.

This RAI showed what we all thought wasn’t possible, that rental affordability in Sydney has deteriorated further. All renters on average sit right on a threshold. The entire city, accounting for the incomes of all renters and the prices of current rents, is effectively unaffordable. You really need to be earning over $150,000 a year as a household to rent a two bedroom flat at anything like an affordable level. Even then you must pitch outside what I think of as Sydney. Not till you reach Canterbury, Parramatta, or Epping does it get affordable even with a household income of $150,000.

The average household income in Australia is around $85,000 per year. At that income only postage stamp areas in the Blue Mountains and beyond Richmond show affordable three bedroom rentals. Parts of Liverpool and on that radius are affordable for two bedroom properties, but we are into two hour commute country.

For pensioner couples trapped in the rental market virtually nothing in NSW is affordable to rent. They will be paying up to 65 per cent of their income to secure rental dwellings. Sydney is not alone in this regard, but fares the worst among our capital cities.

The RAI this year introduces some new features to our interactive map. The overall average data shows how close to the affordability threshold all dwellings in Sydney and many parts of NSW are, but the real story of rental affordability only comes out when one plays with income levels, household configurations and when you look over time.

The map is still being made freely available for public use and it’s a great tool that demonstrates rental affordability for any area we have data and that includes all of NSW.

Interestingly, Hobart is the second least affordable capital city. This is due to lower income levels relative to rents in Tasmania. After that Brisbane and Adelaide have moderate affordability, while Melbourne has the best rental affordability of all east coast capitals. Perth has been improving but just to reinforce the point, no capital city in Australia has any rental housing that is affordable for pensioners, low income working households and many, many others.

I have been using the RAI, especially the interactive map, to look at the Productivity Commission’s (PCs) recent Inquiry Into Human Services, specifically the social housing part of this report. The PC recommends (among other things) increasing CRA by 15 per cent for the most disadvantaged, supplemented by a similar payment from states. That amounts to about a $10 per week increase in CRA for a pensioner or pensioner couple.

A pensioner couple has an income of $45,000 per year, and this would lift that income by $520. Even if their income was added to by an additional $4,500 per year, bringing it to $50,000 (and more than doubling CRA), this would not lift them out of rental stress in Sydney.

Renters in the rest of NSW do not fare much better. For people with an income of $50,000 per annum most of the coastline in NSW remains unaffordable. Affordability wise, Coffs Harbour and the north coast look like Sydney. At $70,000 per year areas around Newcastle and Nowra and regional areas even on the coast become affordable but as we all know, peoples’ incomes in these areas are lower than those in Sydney.

This is a crucial point: affordability is relative to peoples’ capacity to pay. Some regional cities and towns (parts of the north coast are a case in point) have high rental costs in absolute terms. But even in areas where rents are lower, if the majority of the workforce is employed in, say, the service sector, even relatively modest rents will be unaffordable. The RAI is a new tool. At National Shelter we use it to raise the profile of rental housing affordability in the media. But it has also become a tool that people can utilize to look at affordability in their own area. Use the link, play with the variables and see what stories you can tell with it. I am going to use it to model the PC inquiry recommendations and take snapshot maps to show how little $10 a week will help in Australia’s rental market.

People make a lot of sacrifices to live in Sydney but the current rental market means more than sacrifices, it means genuine hardship, poverty and exclusion. People do without medicine, without food, without petrol, can’t register their car, pay insurance or fix broken appliances. The relative cost of rents, especially in Sydney, now generates real poverty and homelessness. This tool doesn’t fix that, but it does illustrate it. And getting that message through is vitally important.

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