The trouble with Airbnb

Airbnb has changed the way we holiday. It’s also changed the way we invest in property with more Australians leveraging the lucrative returns of a short-term Airbnb rental over more traditional tenancies.

Since launching in 2008, the property listing giant has amassed over 3 million listings in 65,000 cities and 191 countries. That number is likely to grow with the release of a global index in January by Nested, a UK online property agent site, which listed Sydney, Melbourne and Perth in its top 50 global cities where owners could recoup costs more quickly via the Airbnb sharing platform.

In Sydney, where the average cost of a three-bedroom house or apartment is $1.34 million dollars, it would take just 80 months (a little over 6.5 years) to recoup the property costs via Airbnb clients. With a traditional tenancy, the equivalent figure is roughly 26 years.

In Melbourne, where the average 3-bedder goes for $928,462, an Airbnb host could recoup the cost of the property after 117 months (10 years) compared to 25 years as a landlord; in Perth, that figure is 7 years versus 24 years.

While it’s good news for investors, the picture is less rosy for renters and first-home buyers. Anecdotal suggestions that Airbnb’s popularity is distorting property markets and contributing to higher rent seem to bear out, especially in city centres with large tourist hubs.

Sydney is an Airbnb hotspot and its fourth most popular destination worldwide, behind New York, London and Paris. It’s also one where listings have grown exponentially.

In the 12 months to June last year, the number of Airbnb listings had more than doubled to around 17,000. By April, it had grown to 24,038, double the listings in Melbourne, a city with an equivalent population.

With the spotlight on housing affordability, the situation in Sydney is particularly severe. Of all of Sydney’s Airbnb listings, roughly one-third (7,247) belong to hosts who are listing more than one property. Of these, a staggering 1,110 properties are controlled by just 20 hosts, suggesting the properties are being listed commercially and not by people looking to make some extra cash while away on holidays.

An analysis into housing costs by Sydney University’s Urban Housing Lab found that in some of Sydney’s hottest Airbnb hotspots rent is sometimes five times the city average. And the number of permanent short-term listings is squeezing rent supply.

Weak tenancy laws that make it relatively easy for landlords to switch from residential to holiday letting is also forcing tenants out of previously renter-friendly areas.

The report recommended giving strata residents and owners corporations increased power to regulate the use of apartments within their buildings.

It’s a view echoed by the Owners Corporation Network (OCN). In January, they called on NSW Premier Gladys Berejiklian to give strata residents and owners corporations the power to ban short-term letting of apartments through sites like Airbnb.

In inner-city areas like Sydney’s CBD, eastern suburbs, inner west and north shore where Airbnb listings account for more than half of all listings in NSW, rent has increased by almost 15 per cent.

That’s nothing compared to the hottest Airbnb hotspots. In Darlinghurst, where Airbnb activity is the highest for Sydney, median house rents have skyrocketed to $1,035 a week, an increase of more than 36 per cent in the seven years since Airbnb became active in Sydney. In Newtown, in Sydney’s inner-west, it’s a similar story.

Despite this, the NSW government is close to giving Airbnb the green light, pending further consultation with the community. This comes after an inquiry into the adequacy of regulation for short-term letting. Currently, regulation varies from council to council.

According to Nicole Gurran, Professor of Urban and Regional Planning and head of the Urban Housing Lab at the University of Sydney, the government is out of step with the rest of the world.

In cities like New York City, another Airbnb hotspot suffering a shortage of housing affordability, research by MYF Legal determined that housing supply could increase by up to 10 percent if all permanent Airbnb short-term rentals in the hottest hotspots were returned to normal market.

The response has been swift. In October New York Governor Andrew Cuomo signed a bill into law making it illegal to advertise entire apartments for less than 30 days on Airbnb. Airbnb has since countered with a proposal to limit the number of properties a host can advertise on the site. Cuomo is yet to respond.

In Sydney, the Tenants Union of NSW, an independent advisory service for renters, has suggested a similar cautionary measure. They’ve called on the State Government to restrict short-term lets that total more than 60 nights per year when it plans to regulate short-term letting.