Taxing Airbnb and short-stay property will not solve rental and affordable issues

News articles this week are highlighting short-stay rentals of the Airbnb, Stayz and Booking.com variety attaining up to $556m a year in tax concessions via negative gearing. Data and commentary are from a new report by Everybody's Home, titled, The Short-Stay Subsidy: Negative gearing and the rise of short-stay speculation. It is intended for policy discussion and advocacy. They say:

'…the tax system is delivering hundreds of millions of dollars in subsidies to landlords who are no longer participating in the rental market. These deductions are being claimed on homes that are unavailable to tenants and contribute nothing to housing access or affordability’.

The inference is that the 'wealthy' property owners and investors are receiving tax breaks on their investment properties, while not making them available to renters. We don’t have to debate the former, but to latter, we can say it definitely makes houses available, to a short-term renter or to those seeking longer but more flexible terms.

The Report understands the relatively small size and impacts to the tax system overall. Nonetheless, it argues that the public should not have to foot the tax bill and subsidise investments in short-stay rentals when there is 'so little public spending on public and community housing'. Following the report’s position then, if the government invested in public and social housing in a material way again, would the tax concession be ok?

To this point, yes, in the grand scheme of things, this is 'small beer', isn't it? There's around 170,000 short-stay rental homes available on Airbnb, which is 1.5% of Australia's housing stock. It's very small. On the Report's numbers, that's about $3,000 tax refund per property. Even less when using the Report's data range estimating the tax concessions between $111m-$556m for this financial year.

We should note that while Sydney and Melbourne have the largest number of Airbnb homes, the highest concentration relative to housing stock is in coastal towns and lifestyle regions (Byron Bay, Gold Coast, Sunshine Coast, Hobart, Tasmania). These areas rely on tourism and have smaller housing markets, so the impact of short-stay rentals is much more pronounced.

Critics of Airbnb and the short-stay rental market say that it is effectively uberising your home. But this is not quite right. Owners aren’t forced to pay ~30% of their takings to the website. It’s more like 3% in Australia. A 14.2% service fee is paid by the guest on top of the booking price and there are rules which guest and hosts must abide by. What's happening here is that owners can rent their property out for large periods of the year, then still make use of it when they want. This provides owners with flexibility not available under traditional long-term year-by-year rental agreements with tenants. For ‘guests’ it opens up a number of properties that previously would not have been available to them. Owners/’hosts’ of Airbnb properties say they can earn close to or about the same in annual rents with Airbnb and still make use of the property for summer weekends or school holiday periods. It's a Win-Win for them.

This is not a totally new phenomena. Short term stays have been available for decades. I recall doing it regularly during and after my uni years with friends. We’d book houses – site unseen – through the newspaper listings or call real estate agents direct. We used to ask the vendor or agent what the place was like! We’d drive up and get a surprise. (Unheard of nowadays!).

One thing missing from the Report, is that in Victoria, short-term stays of less than 27 days are taxed – at 7.5% of the total booking price. It was introduced in January. This effectively offsets the tax concessions the Report is concerned about. Other states may soon follow suit. This tax is on top of the land taxes applicable to the property. The proceeds of this new tax are designed to fund the construction of social and affordable housing in the state. There are also caps in place in Sydney for a maximum of 180 days per year and 60 days in Byron Shire.

Airbnb is a good product

I think short term stays are here to stay as it solves a real problem for owners and short term 'guests' - matching needs of the buyers and the sellers, with the efficiency of the internet.

It would be useful to survey current and prospective investors as to whether they'd still use Airbnb and Stayz if tax concessions were suddenly legislated away. I suspect that many would continue with the current short-stay rental arrangements and adjust their prices upwards to make up the shortfalls.

Oh look! Airbnb did ask and their research confirms this. A recent survey of 1000 Airbnb owners (‘hosts’) in Sydney and Melbourne highlighted the following:

• 2/3rds would not rent their property on long-term (traditional) basis as it was unsuitable, or that is was their second or holiday home
• 40%+ would continue the rentals up to the cap, then leave the property empty

The benefits of having more control over your rental property appear to outweigh the current tax write-offs. A new market has been created by Airbnb. Locals are typically employed to manage the properties – cleaning, maintenance and security.

The other locals, the neighbours, have been left out and I will address their concerns in another post. Their grievances are real and need to be addressed by owners and Airbnb. Experience overseas has led to the app being banned in some locations and states, just like Uber.

The Government and policy advocates are targeting the innovative ways to use housing instead of broader tax policy reform. Things are changing as Australians are increasing their demand for tourist hotspots. Short-stay accommodation in existing properties is a viable option. The converse of needing to build new and larger hotels and resorts may be worse in the locals’ view in their popular areas.

I'm suggesting that this use for rental properties won't materially change housing stock availability. Even if Airbnb disappeared tmrw, the rental markets have been created and will likely persist in other forms.

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