Short-stay is not the solution to the rental crisis

13 September 2023

"Will placing restrictions on short-stay accommodation solve the rental crisis? REIWA CEO Cath Hart says the solution is not that simple."

Will placing restrictions on short-stay accommodation solve the rental crisis? REIWA CEO Cath Hart says the solution is not that simple.

Her comments follow the publication of a comprehensive review of the short-stay market by the Real Estate Institute of Australia (REIA).

The report found there were 10,091 short-stay accommodation places in WA in the March 2023 quarter; 47.3 per cent of these were in Perth and 52.7 per cent were in regional WA.

Of these, only 8,056 were entire dwellings that could be suitable for use as long-term rentals.

Ms Hart said while the number of short-stay entire dwellings has increased 16.2 per cent year-on-year, they only make up a small percentage of total dwellings (0.4 per cent in Perth and 1.7 per cent regionally) and the ratio of short-stay entire dwellings to private rental dwellings was generally low – 2 to every 100 in Perth, although higher at 12.1 to every 100 in regional WA.

“In Perth, the City of Stirling had the highest number of short-stay entire dwellings at 441, when you compare that to the number of rented dwellings – nearly 30,000 according to ABS Census data – it’s a very small portion,” she said.

“Admittedly it is a more challenging situation in some high tourism regional areas. For example, Busselton had the highest number of short-stay entire dwellings at 1,320, compared to over 3,500 occupied rented dwellings.

“Supply is the key issue facing the rental market, and there are frequently suggestions that if short-stay accommodation providers were ‘encouraged’ to switch to the long-term market, the problem would be solved.

“It’s a nice idea but unrealistic.

“Regardless of whatever incentives or disincentives are put in place, not every entire short-stay dwelling is able to be transferred to the private rental market. For example, there are farmers with a property in Perth that they use when they come to town. They may also use it for short-stay accommodation between their visits. They won’t make the switch.

“Similarly, there are people who own holiday homes and place them on the short-stay market in between their own use. And then we have FIFO workers who may let their property for a bit of extra money while they are away on a shift.”

“In addition, we need significantly more than 8,000 properties to bridge the gap between supply and demand in WA. Our modelling suggests between 18,000 – 20,000 additional rental properties are required to see WA return to a balanced market and the majority of these are needed in Perth.”

Will short-stay restrictions see people return to the long-term rental market?

The short-stay market is seen to be a lucrative alternative to the long-term rental market and the report supported this view.

In the March 2023 quarter in Perth, the gross annual income on a two-bedroom dwelling in the private rental market was $25,800. On average, it would take 132 days of successful hosting to make the same income in the short-stay accommodation market.

In Regional WA, it would take around 107 days of hosting the same size dwelling in the short-stay accommodation market.

It is frequently suggested implementing a cap on the number of days a property can be used for short-stay accommodation would encourage property owners to reconsider using their property as a long-term rental.

Ms Hart said this is an impractical solution.

“Capping usage to 120 days, or four months a year, doesn’t mean the home could be available as a long-term rental for the remainder of that 12 months,” she said.

“Very few short-stay dwellings are let for 120 days in a row, in general they are used during holiday periods throughout the year. They would be unable to be used as a long-term rental in between stays.

“Secondly, if you wanted to make short-stay financially non-viable, based on the data from the report you would have to implement a very low cap. This could impact tourist areas where short-stay accommodation provides a necessary service and supports local businesses.”

Registration for short-stay accommodation

Ms Hart said REIWA supported a registration scheme, which will provide for improved regulation and an overview of the entire market; support residents living in tourist areas; and help create greater uniformity in how the short-term rental accommodation sector is managed throughout WA.

“A registration scheme is already in place in the City of Busselton where a strict code of conduct applies to owners, managers and tenants,” she said.

“This ensures an appropriate standard of management and minimises the risk of such accommodation causing a nuisance to neighbours.

“The rules place a limit on the number of guests after 10pm, nominate a maximum number of cars to be parked at the property and require managers to have their contact details visible from the street so people know who to contact when there is an issue.”