NSW Eyes Victorian Short-Term Rentals Levy to Tackle Housing Crisis

The logo for US rental site Airbnb is displayed in its Tokyo press conference on June 14, 2018. Toshifumi Kitamura/AFP/Getty Images

The New South Wales (NSW) government is considering imposing levies on short-term rentals and holiday homes to deal with the severe housing crisis in the state.

This comes as Australia’s most populous state is seeing an alarming number of young people move to regional areas or other jurisdictions due to unaffordable housing prices.

On Feb. 15, the NSW government released a discussion paper (pdf) to investigate potential measures that could improve the housing supply and reduce prices.

The state government aimed to encourage more “efficient use” of dwellings while balancing the economic benefits of short-term rental accommodation and costs to housing affordability.

“We’re determined to do everything we can to tackle the housing crisis and put every part of the housing market under the microscope for options to encourage a greater supply of long-term rental accommodation,” said NSW Housing Minister Rose Jackson.

“All options are on the table, and we are keen to hear from the community on how various aspects of regulatory and revenue measures can be designed to get the best outcome.”

One of the measures proposed in the paper was imposing new taxes on short-term rentals and holiday homes to “incentivise” investors to convert their properties into long-term rentals.

Under the proposal, three tax models will be put forward for public discussion, including a levy on the revenues from bookings of short-term rental accommodation, day fees per guest staying in short-term rental accommodation, and an annual levy based on the use of the property.

The paper said the revenue raised through the taxes could be used to fund programs to support the most vulnerable state residents.

In proposing the new taxes, the NSW government took reference from the Victorian government, which introduced a 7.5 percent levy on short-stay accommodation in September 2023.

According to government data, NSW currently has 95,000 residential properties not used for long-term housing.

Around 35,000 are used as non-hosted short-term rentals, 45,000 as holiday homes, while the remaining 15,000 are left vacant throughout the year.

Meanwhile, the state government forecasted that NSW would need an additional 900,000 homes by 2041 to cater for the growing population.

Other Measures

Apart from the levies, the NSW government also considered introducing other regulatory measures to make it less appealing to investors to maintain their short-term rental properties.

For example, the government could raise the registration fees for short-term rental accommodation or impose more onerous requirements for short-term rental approval.

Lowering day caps on non-hosted short-term rental accommodation was also a solution the NSW government might want to explore.

At present, the state only imposes a day cap on a small number of local government areas in Greater Sydney.

Medium density houses are seen in Sydney, Australia, on Jan. 11, 2024. Jenny Evans/Getty Images

While some local governments in other parts of the state wanted a day cap to be imposed on their areas, the NSW government remained cautious about introducing a single day cap restriction that applied to the whole state, citing unknown impacts on the market.

Currently, a 180-day cap applies to non-hosted short-term accommodation in Greater Sydney and a few regional areas.

Other measures included limiting the number of homes in an area that can be used for short-term rental accommodation and limiting the number of guests that can use a short-term rental property.

The discussion paper comes just days after a report by the NSW Productivity Commission revealed that 70,000 people aged 30 to 40 moved out of Sydney between 2016 and 2021 due to soaring housing costs.

Government data showed that advertised prices for long-term rentals in NSW had increased by over 38 percent since the end of 2019, while rental vacancy rates also dropped to near historically low.

Productivity Commissioner Peter Achterstraat warned that Sydney could become “the city with no grandchildren” if the state government did not take action to address the housing crisis.