Why the Airbnb tax won’t solve Victoria’s rental crisis

An attack on Airbnb might win some headlines, but it won’t do much to mitigate the real causes of Victoria’s rental crisis. 

For the past few months, there’s been increasing chatter about the Victorian government looking to cap the number of nights each year that an owner can rent out a property as a short-stay accommodation — a motion that passed the ALP state party conference in June. 

Other mooted options include a tourist levy or ‘Airbnb tax’, charged to people booking short stays, as well as greater flexibility for councils to increase rates on short-stay properties, or that perennial favourite — a rise in land tax. 

Just which way the government will jump won’t be clear until we see the promised housing package, due as soon as next month. 

Reporting to date suggests the package could be a grab bag of different plans, all put forward in the name of curbing the genuine shortage of rental properties, but none delivering the critical impetus needed to get investors moving. 

The Airbnb tax is a classic case of misspent energy. 

According to reports, a levy of about $5 would be imposed on people booking short-stay accommodation, presumably with the goal of deterring property owners from using their accommodation for holidaymakers and instead driving them back into the broader rental market. 

Victoria would be far from the first jurisdiction to try this approach. 

At least 18 European countries apply short-term occupancy taxes, which have to be paid by the visitor and can’t be included in the published price, ranging from just 10 Euro cents a night to EUR7.50. 

In the US, they are called transient occupancy taxes and differ across the 50 states and even across towns, with many levied by local authorities. 

But despite the short-term hit that makes a night in an Airbnb more expensive, the taxes don’t solve the long-term rental problem. 

Amsterdam has had ever-increasing tourism taxes since 2015, for example, and has sharply restricted the number of short-term stays allowed, but ordinary rents continue to climb.

Restricting accommodation nights can also backfire, pushing short-stay accommodation providers underground to avoid the cap. 

And hiking rates simply increases the tax compliance and red tape challenge for anyone operating across multiple local governments. 

Short-stay operators are an easy target for policymakers, but in an Australian context, there are much bigger problems than a thriving Airbnb market — and they start with the impact of constantly negative messages for property investors. 

Australia is nearly 50,000 rental properties short, according to Core Logic, a problem that can only be addressed by boosting supply. 

Despite the desperate need for greater housing supply, both for owner-occupied homes and rental properties, landlords and investors continue to shoulder the cost of repairing Victoria’s budget. 

On properties that already attract a land tax, there will be a COVID surcharge of at least $500 ranging to $975 plus an additional 0.1% — which is intended to remain in place for 10 years commencing the 2024 land tax year.

For an owner residing in Australia, Victorian land tax will double next year from $775 to $1950 on a half-a-million-dollar block of land. 

On a million-dollar land asset, the tax will be $4650. 

That’s a substantial hit for any mum-and-dad investor looking to develop a rental property, particularly as interest rates continue to squeeze. 

More troubling, though, is the impact of the tax grab on bigger, overseas investors who are sorely needed to provide the capital to support build-to-let developments in our State. 

If the owner of that land is classed as an absentee owner, not a citizen or permanent resident, and meets criteria such as being out of the country for more than six months, the land tax on a million-dollar block will be a stunning $44,650 — just under 5% of its total value. 

If we want to incentivise overseas investors to develop build-to-let properties locally, imposing taxes of that order is not the way to do it. 

What would an alternative approach look like? 

Perhaps we could try the carrot, not the stick. 

Given the extreme shortage of rental properties, a growing population, and a generation that will struggle to ever buy their own homes, we need a system that encourages investors to provide a range of quality short and long-term accommodation.

We could do more to support landlords operating in the long-term rental market. 

We could encourage people to make vacant homes available by giving them a rate or land tax discount for the time the property is available for rent. Instead of punishing investors by increasing their land tax bills, why not incentivise them to put their properties into the long-term rental market and keep them there by giving them a rate or land tax discount if they do that.

And we could give foreign owners an exemption from the Foreign Purchaser Additional Duty if they are developing dwellings that help Victorians find homes. 

Instead of sabre rattling and threats, which only serve to make investors nervous, we should spell out exactly what policy objectives we want to achieve, then provide investors some confidence that they can plan for the long term without another levy being dropped through the news. 

Tackling the rental shortage means providing more rentals. Demonising landlords and investors and tweaking a tax on Airbnb isn’t the way to get there. 

Craig Whatman is a partner at Pitcher Partners in Melbourne.