The latest alibi for Australia’s housing crisis is short-stay accommodation operations like Airbnb and Stayz.
They’re an easy target. Any change makes people uneasy, and innovations like these are definitely a change.
Instead of learning to live with them, it’s easier to regulate them. And if you regulate them, you can tax them, which you can represent as being mere cost recovery.
So they’re a profitable target as well.
There’s definitely a housing crisis but the major causes have nothing to do with short-stay accommodation apps.
The crisis exists for both buyers and renters. It is partly a result of house price increases, partly a result of not enough supply for the demand, and partly a result of a rise in interest rates and other costs.
Buyers are frozen out by high prices and can’t service the loan required, leaving them in the rental market.
Landlords, faced with rising costs (interest rates on mortgages) and a short supply of housing, are using the opportunity to increase rents.
House prices have risen for two reasons. One is that asset prices go up when interest rates go down. A second is that demand has been growing faster than housing supply.
The reason house prices go up as interest rates fall is that low-interest rates mean you can service a larger mortgage, which means you can pay more for the asset. So prices get bid up.
Until recently, interest rates explained 70 percent of price rises, according to research from the Reserve Bank of Australia (RBA).
However, this relationship has broken down to some extent because house prices have not fallen as far as theory would suggest as the RBA cash rate has moved from 0.1 percent to 4.1 percent.
Housing Prices Remain Stubbornly High
Our research at the Australian Institute for Progress suggested that to preserve affordability dwelling prices should fall somewhere between 18 and 32 percent as a result of the rate increases.Prices have stabilised after a fall of much less than 18 percent at the bottom of our range.
This is because the gap between supply and demand has tightened more than it ever has in our history.
Supply has been crunched by planning restrictions; unrealistic expectations by planners that infill (splitting blocks and building multi-story in already developed areas) can fill more gaps than it can; and governments loading new home buyers up with costs for infrastructure which they should be paying themselves out of consolidated revenue.
Demand has been fuelled by huge rates of immigration; a decrease in the average number of residents per dwelling; material shortages, a hangover from COVID; a shortage of tradesmen; and widespread bankruptcies in the building industry.
Supply for renters has decreased even further because landlords have been withdrawing from the market because of rising costs. Various state governments have also been introducing tenant rights legislation, shifting some of the rights of ownership from the landlord to the tenant and increasing the landlord’s risk.
Where Does Short Stay Fit in the Equation?
Short stay creates supply and demand. It has created a new demand for accommodation which may be, but not necessarily, met by taking housing out of the long-term rental pool.It may equally well come from existing holiday rentals, or even be purpose-built stock which is unsuitable for long-term rental.
The authors find that less than 1 percent of residential housing is a short stay and that it hasn’t increased since 2018 and appears to have plateaued.
If there wasn’t a rental crisis five years ago when short stays were a similar proportion of the market, and it hasn’t increased since then, it should be no surprise that their regression analysis could find no link between short stays and housing affordability.
The report points to many positive factors about short stay. It builds the local tourism industry, provides support for many local businesses, and also may provide an income stream to support existing homeowners, perhaps allowing them to service a mortgage instead of having to sell up.
It also provides competition to local hotels and motels, forcing them to keep their tariffs down—another boon to the tourism industry.
While some short stay is probably withdrawn from the long-term rental pool, a lot of it represents housing that was always devoted to holiday rentals, so there has been no change of use at all.
Australia expects somewhere around 700,000 net migrants in the next two years. That will require somewhere around 280,000 dwellings, which represents around 2.8 percent of our dwelling stock, and will have to be built new.
How much does a static 1 percent of housing stock add to demand, compared to a dynamic 2.8 percent?
Short stay actually increases the productivity of our residential housing stock, and that’s a good thing for everyone.
If it raises prices, that should be a signal to developers to build more, and that will fix any housing crisis.
Of course, they won’t be able to build that stock so easily unless councils and state governments simplify their planning regulations and provide the infrastructure necessary to get work going.
While that sort of work might be seen as unglamorous, if it is seen at all, in the long run, they will have happier citizens who will be more likely to re-elect them. Picking on short stay plays into our grievance culture and not much more.
In the end, a good housing policy means there is housing available for everyone and every need. It does not mean you restrict who can come in to make the existing housing stock adequate.
The system most likely to produce that outcome is one where individual property owners are free to make the decisions that suit them best with their property, and there is a development industry unconstrained by regulations to help them make those decisions most effectively.
