In Sydney’s Canterbury there are more than 1000 Airbnbs on offer but the suburb only has 196 rental properties. In West End, Brisbane, there’s 542 long term rentals and more than 1000 plus Airbnbs. Merri-bek in Melbourne’s inner north has only 664 long term rentals to 1000 plus Airbnbs. According to land economist Karl Fitzgerald this is massive market failure that’s decimating communities. His report for Grounded, Airbnb: from a housing problem to solution, outlines how this short term accommodation service is not working.
Should Airbnbs be allowed to run unhindered or should we cap the numbers and channel some of the profits towards affordable housing? That’s the question we’ve asked in our new report Airbnb: from a housing problem to solution. Thirteen of Australia’s leading tourism towns were analysed, revealing that Airbnb investors enjoyed a stunning 81 per cent higher return than a traditional landlord.
This provides an incredible incentive for investors to switch their property to short term rentals (STRs).
Housing supply is going backwards in the towns studied, with more of it going towards Airbnb than it is to either the rental or ownership markets.
Over the last decade the equivalent of 74 per cent of new supply has migrated towards these short term profits.
Airbnb sponsored reports typically water down their impact by comparing their stock to total dwellings. “Nothing to see here, we account for just 5.7 per cent of total dwellings”.
The rental market is where the pain is first felt with people on the margin are forced to make ends meet when investors prioritise short term returns over a long term community. Such a comparison shows that Airbnbs account for 35 per cent of rental supply. Watch the ABC segment on this topic:
No wonder there’s a housing crisis.
Apollo Bay and Noosa Heads both have more than twice as much short term rental supply than is available for traditional renters. Investors in these towns receive a return on investment of more than 100 per cent above the typical rental property.
That’s why capping the number of is urgently required.
The report details how we can cap the number of Airbnbs, reducing the number every two years.
By auctioning off STR licences that increase in value alongside their scarcity, Airbnbs become less profitable. Importantly, rising licence fees discourage marginal Airbnbs, incentivising them to rejoin the traditional housing market.
Not only does the Airbnb cap and trade system reallocate investments, but it raises revenue for the funding of affordable housing. In the ABC article on the topic I am quoted as saying:
Mr Fitzgerald estimates that in the Hepburn Shire where he lives, there are around 1,400 short-term rentals but only 1,100 of them are active.
“So the beauty of the ‘cap and trade’ system is that it works most effectively on marginal sites,” he said.
“Those excess 300 sites that aren’t so active would probably head back onto the market.”
A significant advantage for government is that it doesn’t have to spend much to drive meaningful change. Housing policies are costing billions of dollars these days because you barely get two affordable homes for a million dollars.
We need to help the market help itself.
In my discussions with Airbnb operators, they prefer the cap and trade system over the 90 day cap rate because the latter would wipe out much of the industry. The cap and trade system gives entrepreneurs time to adjust. Those that aren’t operating effectively will likely leave the market quite quickly.
Whilst shocking at first glance, the numbers are unsurprising to analysts of the short term rental market. They’re actually quite conservative because we looked at active listings rather than total listings. That provides a 25 per cent discount to the numbers analysed. So, it’s likely that Airbnb is actually equivalent to 50 per cent+ of rental supply.
Over time, as the cap and trade licensing fee increases, the funding should be given to local councils to fund affordable housing. Community land trusts can then partner with councils, working together to lock in perpetual affordability, maintaining and recycling any public subsidy.
By rolling the cap and trade policy in over time, we would expect the licensing to start at around $3,000 in year one. By year 8, it would account for some $8,500 on a median $42,000 in net profits. That’s a small price to pay to ease the housing crisis.
If you need further convincing of why this change is needed, just plug your suburb into one of the many rental listings websites to see how few homes are available for renters. Then pop over to Airbnb to see how many short term rentals are on the market.
Do we really need 1000 plus Airbnbs in Sydney’s Canterbury, when it only has 196 rental properties? In Brisbane’s West End, there’s 542 long term rentals compared to 1000 plus Airbnbs. Merri-bek in Melbourne’s inner north has only 664 long term rentals to 1000 plus Airbnbs.
These numbers are replicable across the nation, which is why it is time for change. Ask your state treasurer whether we need housing resources allocated this way – particularly during a never ending housing crisis?
Want to learn more? Karl Fitzgerald is hosting a free webinar on 4 July to unpack the report’s finding. Details here.