From Uber to Airbnb, governments and local councils are finally catching up and regulating the sharing economy. It was only a matter of time. So what does that mean for Australians who have been using platforms like Airbnb to profit from their investment properties?
The NSW Government has proposed new laws governing short-term rentals, which would give strata owners the power to pass by-laws that prohibit investors from letting their apartments on sites like Airbnb. Owner-occupiers would still be allowed to rent out their spare room, or entire unit, on the platform.
Under the new laws Airbnb hosts in the greater Sydney area will be restricted to being able to rent their property out for 180 nights, or roughly six months, per year. The new regulations will impact other accommodation platforms as well, such as Stayz and Bookings.com.
While regional areas aren’t covered by the new cap, local councils are free to enact their own rules if they wish to do so. There will also be a mandatory code of conduct to deal with problems such as antisocial behaviour and noise complaints.
For hosts or guests who breach these conditions the punishment is severe – two serious infringements within two years would see them banned from Airbnb and all other short-term holiday platforms for five years, with fines up to $200,000. Businesses could be dealt fines as high as $1.1 million.
This follows the trend overseas where, in Central Paris for example, short-term rentals of a main residence are limited to 120 days per year.
While Airbnb’s creators intended the platform to be a way homeowners could make a little extra cash renting out their unused rooms it has been leveraged by investors eager to make a better profit.
Due to the nature of short-term lets some apartment buildings in Sydney have become glorified party pads with neighbours frustrated by the noise and late-night comings and goings. It’s also had a negative impact on rental affordability as landlords chase dollar signs on Airbnb rather than letting their property the traditional way. In Byron Bay, for instance, locals have reported struggling to find long-term rental accommodation thanks to the preference by landlords for high-yield short-term lets over the peak tourist season.
A risky strategy
As legislation plays catch-up with the fast-changing marketplace there can be perils in jumping on the Airbnb bandwagon for investors. Even before the current crackdown short-term lets were always something of a risky strategy that could backfire at any time.
While there’s a steady stream of tourists and local partygoers propping up the short-term let market in Sydney at the moment this offers none of the security of long-term highly vetted tenants with a binding lease. Furthermore, you have no knowledge of, or say over, who is actually residing in your property day-to-day or week-to-week.
With the landscape of the new online economy continually evolving nothing is a sure thing, particularly as legislators scramble to stay in touch with the technology.
So where to instead?
Investors would be wise to consider heading to the tried and tested method that rarely fails, by buying quality properties with growth potential and holding them long-term.
As the recent developments in the Airbnb game demonstrate, get-rich-quick trends are fraught with risks. By adopting a slow and steady approach to property investing, based on sound research, you can minimise your risk and maximise your wealth.
It’s a strategy that has served Australian property investors well for decades and will continue to do so. Certainly if you're planning a holiday or have a spare room in your own home you might consider advertising it on Airbnb for some extra spending money but as an investor short-term letting platforms don’t usually make sense.
Don’t jump on the latest bandwagon for the sake of it; consider whether a short-term letting strategy genuinely suits your risk profile, your budget and your goals and only then should you proceed.