The federal government’s overhaul of property taxes will force investors in short-term rentals to rethink their plans and could free up homes in the nation’s major capital cities, with Anthony Albanese arguing outlets like Airbnb have become a factor in the property market.
Amid expectations that house prices will ease over the next year because of the government’s planned changes to capital gains tax and negative gearing, property analysts believe there will be a flow-on impact to the holiday rental sector.
Albanese was pressed by a caller on ABC radio on Wednesday about how his government’s planned negative gearing reforms, which will limit negative gearing to new builds, would affect the supply of new long-term rentals when so many homes had been turned into short-term holiday rentals.
There are an estimated 175,000 short-term rentals in Australia, or 1-2 per cent of the rental market, with the majority in capital cities and major tourist centres. There was a drop in these properties during the early stages of the pandemic as the international border was closed, but there has been a sharp increase since 2022.
That has coincided with a fall in the nation’s rental vacancy rate and an explosion in rents. The vacancy rate has more than halved since 2020, falling to just above 1 per cent. Rents have jumped by more than 22 per cent since mid-2023.
Albanese told reporters that short-term rentals were a factor in the tight rental market, and that the government’s changes were aimed at giving young Australians a chance of buying their own home.
“Everyone knows it’s broken. Everyone knows that young people are not getting a fair crack at a roof over their head, which is why we’re pursuing reform. Reform is always hard when it comes to tax reform, but it’s the right thing to do,” he said.
The government’s modelling of its changes suggests house prices will be 2 per cent lower than they would have been without the reforms, while it has estimated rents may climb by less than $2 a week.
University of Sydney professor of urban and regional planning Nicole Gurran, who recently co-authored a report into the impact of short-term rentals, said a number of factors had contributed to the nation’s tight rental market.
She said it was clear short-term rentals contributed to the squeeze, particularly in and around central business districts.
According to Gurran, while current negatively geared rentals were protected under the government’s reforms, there was likely to be an impact on investors who may have been seeking to buy an existing property to turn into a short-term rental.
“There’s likely to be a marginal effect on the short-term rental market. You won’t have as many investors thinking they can use the tax system to help them buy a short-term rental. They won’t have that leg-up from taxpayers,” she said.
“These investors will have to make a decision whether to go with a long-term rental. That could see an increase in permanent rentals in those areas.”
Overseas, major tourist centres including New York, Paris, Barcelona and Amsterdam have tightened rules around short-term rentals following complaints that residents who use permanent rentals are being forced out of their homes. The City of Sydney is considering a ban on all short-term rentals.
Gurran said there may be an impact from the reforms in holiday centres where capital gains are traditionally much smaller than in major centres and property owners often put up their homes as short-term rentals.
The executive director of Short Term Accommodation Association Australia (STAAA), Keiran Craig-Jones, said the grandfathering of existing negatively geared investors would mitigate the impact of the reforms.
But she noted tourist-centred areas may be affected.
“Where STAAA does anticipate longer-term pressure is in regional areas where short-term rental accommodation properties form a critical part of visitor accommodation supply,” she told this masthead.
“If reduced tax incentives discourage new investment in holiday accommodation properties beyond the grandfathering date, we may see supply constraints emerge in these markets over time, with real consequences for tourism capacity and regional economies where there is limited or no other accommodation options.”
Craig-Jones said a major issue was so-called “rental arbitrage”, where an individual or business sublets a property that would otherwise be available for the long-term rental market but turns it into a short-term property.
“The rental arbitrage model is actively promoted as a business opportunity in capital cities such as Sydney and Melbourne, where the gap between long-term lease costs and short-term rental accommodation returns is particularly attractive,” she said.
The debate over the impact of the government’s reforms on the property market, along with higher interest rates and inflation, has forced economists to reassess their expectations on price growth.
NAB is tipping prices to fall by 6 per cent in Sydney and by 7 per cent in Melbourne this year before marginally improving by 1 and 2 per cent respectively in 2027.
Such falls would take property prices in Sydney back to where they were in mid-2025 and in early 2025 in Melbourne.
Analysts at UBS believe prices will edge down by between 3 and 5 per cent across the nation, but argue there are factors working against a much larger fall, including continued growth in wages and an undersupply of dwellings. Even the government’s tax changes will encourage construction that will have a broader impact.
“In the ‘new’ market, the changes to taxes will skew investors to demand new builds. Similarly, the renovations market also has a record-high pipeline of approvals. Hence, this should also provide some support to nominal prices in the established market,” senior economists George Tharenou and Stephen Wu said.
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