Short-term rental taxes fail to deliver on housing promises

The Victorian Government’s 7.5 per cent tax on short-term rentals has failed to deliver any meaningful improvement to the state’s rental supply, echoing similar failures internationally, experts say.

The “Airbnb tax” came into effect on 1 January 2025, yet since then, Melbourne’s rental shortage had become even worse, according to rental vacancy data from SQM Research.

“This policy hasn’t moved the dial,” said Ethan Brown, Asia Pacific general manager of property management software company Hospitable.

“It was introduced as a proposed solution to the state’s housing availability and affordability challenge and designed to push more homes into the long-term market,” Mr Brown told Australian Property Investor Magazine.

“In November 2024, Melbourne, a city of over five million people, had only 10,755 rental properties on the market, SQM Research data shows,” he said.

That represented a vacancy rate of just 2.0 per cent.

The 7.5 per cent levy is placed on owners of short-term rental accommodation, who must pay it to the State Government. Most redirect the amount to consumers. It was legislated as the Short Term Levy Bill 2024.

“Half a year later, there’s been no meaningful improvement. Melbourne’s vacancy rate dipped to 1.5 per cent in March and has barely budged since, sitting at 1.8 per cent in June,” Mr Brown said.

“For renters, it’s the same story: fierce competition, few options, and rising prices, with the city’s average weekly rent hitting $651.62 in July, up 2.8 per cent in the past year.

“Instead of freeing up homes, it has piled extra compliance and administrative work onto short-term rental hosts without benefiting the people it was supposed to help,” he said.

Lessons from New York

Professor Peter O’Connor of the University of South Australia — who has just completed a study into the experience overseas of curtailing short-term rentals — says the Victorian experience is “unsurprising”.

“In New York about two years ago they effectively banned short-term rentals…with the express objective of returning those short-term rentals to the long-term rental and housing markets, in order to increase availability and improve affordability,” Professor O’Connor said.

Yet homes were now no more available — and even less affordable.

It was just a media bite, it was dead in the water as soon as it was announced.

- Karl Fitzgerald, Grounded

The policy had “zero effect” on vacancy rates and affordability had actually decreased, Professor O’Connor said during an interview with API Magazine.

“What’s happened over the last probably about 18 months, is, the vacancy rates in New York have stayed exactly the same, so it had zero effect on vacancy rates,” he said.

“And affordability has decreased, so the average rents in New York have increased at a higher rate than comparable US cities.”

The number of short-term rentals had “decreased massively”, but were “not migrating into the long-term market”.

“They are effectively either being left vacant or, more likely, they've moved on to the black market,” Professor O’Connor said.

“There’s increasing evidence that instead of renting short-term rentals through the platforms, now what’s happening is people are renting short-term platforms through social media, and through informal contacts and so on.”

That meant safety and security aspects were being neglected.

“The data doesn’t support that these initiatives are actually having effect on long-term housing,” Professor O’Connor said.

“Short-term rentals are a low hanging fruit which are very, very visible, which allow the politicians to demonstrate that they are doing something to address the housing crisis.

“This is my opinion, but looking at the qualitative evidence that we’ve been looking at around the world, these regulations don’t achieve the objectives that they think that they’re actually achieving.

“They have unforeseen negative consequences, both in terms of tourism, but also in terms of the multiplier effect onto the local economy and so on,” Professor O’Connor said.

The office of Victorian Premier Jacinta Allan had not responded to a series of questions from API Magazine at time of publication.

Rental tax ‘dead in water’

Victoria’s 7.5 per cent short-term rental tax was “dead in the water” from the outset, said economist Karl Fitzgerald, Managing Director of not-for-profit housing advocacy group Grounded.

“The policy makers knew that,” Mr Fitzgerald told API Magazine.

“It was just a media bite, it was dead in the water as soon as it was announced.

“Any time these levies happen they’re just passed straight on,” he said.

In a study released last year, Mr Fitzgerald analysed 13 Australian tourism hot spots and found that, on average, over the preceding decade, the equivalent of 74 per cent of new housing supply had gone to short-term rentals.

Regarding housing accessibility and affordability, short-term rentals were “another straw that breaks the camel’s back”.

“Record low social housing investment; increased commodification of housing through digital channels to buy and sell and lease real estate; huge population surges — all of these things add up.”

Mr Fitzgerald has called for a “cap and trade model”, where short-term rentals are licensed, and then the number “slowly capped”, with fees raised to fund “long-term perpetually affordable housing”.

“One good thing out of Victoria’s levy was that there is now a potential for councils to create a licence, so they actually know how many full, dedicated homes are Airbnb,” Mr Fitzgerald said.

“But it was a voluntary measure as to whether the councils took up the licensing. 

“And I’m yet to learn of any councils that are actively doing that,” he said.

Professor O’Connor said a failure to register short-term rentals meant Australia did not have the required data to make informed policy decisions.

“In many states we don’t even have registration, so we don’t even know how many short-term rentals there effectively are,” he said.

“We don’t know whether they’re in individual ownership or multiple ownership, so we don’t know if it’s people speculating or if it’s mom and pop renting out their holiday home.”

The data that could be obtained, such as from host platforms like Airbnb, and general housing data, was “sporadic”.

“We could do with much more accurate data in order to really understand the problem before trying to put solutions into place,” Professor O’Connor said.

“As a generalisation, we do not have enough and accurate data in order to be making these kinds of decisions.”