Airbnb behind Australia’s rental crisis

One of the big conundrums arising from the pandemic is the sharp fall in rental vacancy rates across Australia despite negative net overseas migration.

Logically, the loss of hundreds-of-thousands of migrants should have seen Australia’s rental vacancy rate rise. However, vacancy rates instead plummeted.

One plausible explanation is that Australian’s desire for additional space has seen the number of people per dwelling fall sharply, thereby lifting rental demand despite sluggish population growth.

Another possible explanation is that short-term rentals like Airbnb have taken homes out of the long-term rental pool.

New York now has more Airbnb listings than apartments for rent, according to Curbed:

There are now bidding wars for one in every five Manhattan rental apartments (and one in three luxury units), according to the most recent Douglas Elliman report. Inventory in all of Manhattan, Brooklyn, and northwest Queens has been hovering well below 10,000 units — as of April, the number was just 7,669. Which is several thousand less than the number of entire-apartment and entire-home Airbnb rentals available in New York City right now: 10,572, according to AirDNA, a third-party site that tracks short-term rentals. Inside Airbnb, another site that scrapes Airbnb for listings data, puts the number even higher, at 20,397.

Ever since Airbnb came on the scene in 2008, there have been concerns that the short-term-rental company would deplete the housing stock by sucking up available rooms, causing prices to rise in cities like New York and San Francisco, where there were already severe housing shortages.

A quick look at Airbnb listings across Sydney shows there are 20,891 places for rent:

Sydney Airbnb listings

Domain has 12,461 properties for rent (all property types except land) across Sydney, whereas SQM Research shows 12,758 rental vacancies across the city:

SQM Rental vacancy rate

So, more than 60% of all properties for let in Sydney are short term rentals according to these figures.

This is obviously a back of the envelope analysis and does not take account of overlap between the two sets. Nor does it compare the impact of Airbnb rentals prior to the pandemic.

Nevertheless, it does suggest that short-term rentals like Airbnb are having a major impact on the rental market and are exacerbating Australia’s acute shortage of rental homes.

Unconventional Economist
Latest posts by Unconventional Economist (see all)

Comments

  1. Tassie TomMEMBER

    I’m not convinced by the :”AirBnB’s fault” argument.

    20,000 AirBnB properties (of which only 2/3 are entire properties) out of 2 million dwellings (5 million people divided by average 2.5 people per dwelling) is about 1% of dwellings.

    Launceston has similar numbers – there are a touch under 400 AirBnB properties out of around 40,000 dwellings, and there sure as hell is a rental crisis here too.

    All it would take is for building stock to increase by 1% (and your previous article today indicates that it’s increasing by 2%pa) or for population to fall by 1% and it would completely nullify the effect of AirBnB properties.

    I suspect that the real reason behind the rental crisis is that the number of people per dwelling is decreasing, ie, the number of spare bedrooms is increasing. This is 100% due to the increasing wealth divide – people who can afford spare bedrooms are willing to pay for them, and then other people cannot afford even one bedroom.

    “Spare bedrooms” also includes the “weekender” property that is not let out using AirBnB.

      • Tassie TomMEMBER

        Yes I agree it’s a factor, but it’s also a distraction from the real issue, and distractions are dangerous.

        Take “hydrogen fuel cell vehicles”, or “carbon capture and storage”, or even “filtered cigarettes”. All of them are deliberate distractions which “kicked the can” years or decades down the road before the real issue was addressed, causing huge damage by allowing the incumbent (petrol, coal, tobacco) to continue in the mean time.

        AirBnB is a deliberate distraction promoted by the FIRE industry so that the real issues are overlooked and the industry can continue to make mega profits from the collateral damage of homelessness that they cause.

          • TRADINGtheAPOCALYPSE

            A distraction from the barrier reef being dead, Australia’s (and global) extinction crisis accelerating, distraction from coalition shelving the “state of the environment” report, a distraction from highest rates of land clearing and habitat destruction in oecd. There’s a bit to distract from..

    • Speak to people in the Northern Rivers who can’t get somewhere to live about AirBNB.

      Time to tax and regulate

      • Charles MartinMEMBER

        100%.
        My cousin who is 22 wants to move out and share with a few mates and cannot find anything that is reasonably affordable for them around Nambucca. He told me that a quarter of his parents street is AirBNBs, which great for the serenity but not so great for rental supply.

        • StomperMEMBER

          Nambucca must have an acute shortage of land to result in a shortage of accomodation. How far from the Nambucca CBD is he prepared to live?

          • DogbertMEMBER

            Nambucca Heads seems to have many properties for sale starting from 300k and a new estate with blocks for sale from 350k…I’m not buying the airbnb argument

      • Tassie TomMEMBER

        What if you build your own beach house? Then you’ve added to supply (although you haven’t really if you just keep it for yourself as well as your PPOR, but you haven’t taken from supply).

        If you AirBnB that then you a) haven’t taken from supply because you’ve built the thing, and 2) you’ve put competitive downward pressure on the competing AirBnB properties, meaning that AirBnB might become uneconomic for one of them and they choose to long-term let instead.

        • Haven’t you taken a block of land and building materials away from someone else who may have used it for a PPOR or rental property?

          • Tassie TomMEMBER

            They can build on the next block. And (most of) the building materials and labour supports Australian jobs.

        • Sure, once you paid $5M for the land at Belongil and $2M on the build, that’ll definitely be rented out.

          I’m specifically talking about this area, but it is not the only area.

          It is difficult to argue they do any good when they are sitting there on holiday lets or AirBNB when locals can’t get somewhere to live. I don’t disagree it doesn’t deal with the broader issue, but it as LVO says, is still a factor.

          LVOs back of the envelope analysis is sound.

    • DingwallMEMBER

      I suspect that the real reason behind the rental crisis is that the number of people per dwelling is decreasing …………..This is 100% due to the increasing wealth divide

      We need more information really. What about the people that were renting (2-3 co-renters) suddenly with FOMO, FHB, and low rates diving in and buying a house. This isn’t driven by wealth divide but certainly drives down the number of people per dwelling. Also there must be a lot of singles, some probably quite old, that were living at (parent’s) home but have now managed to get out in their own place. This drives down numbers per dwelling too.
      The wealthy are more likely buying a second home outside of the cities to escape when they need to. They may or may not use AirBnB while they are not there. This could mean AirBnB stock could be somewhat transient to

      Also how much has AirBnB grown in the last 2 years. 1% swings etc could make huge differences for rental stock if other things are constant.

    • hareebaMEMBER

      Please educate me TT. If there was NO Air B & B would not most owners just rent them out? Thereby alleviating the current status quo?

      • Tassie TomMEMBER

        Fair question. The simplistic implication from this article is “yes”. My argument is that AirBnB is a “straw man” that is being blamed for the rental crisis whereas the real reason is that houses are so ridiculously expensive.

        Nobody wants to blame ridiculously expensive housing for the rental crisis because 1) the solution is to reduce house prices, which will make many people (voters) feel poor and which will probably make the banks broke and crash the economy, and 2) everyone’s got their snout in the trough for people to pay more for housing (all levels of government plus the FIRE industry that bribes all levels of government).

        There are two things that determine the price of rent: 1) Barrier to ownership, and 2) Capacity to pay. What bigger barrier to ownership is there than our current house prices? Here in Launceston house prices could halve from their current levels and they’d still be asking way too much.

        Your question “if there was no AirBnB would owners just rent them out? Thereby alleviating the current status quo?”

        Well, that’s two questions, and the answers are “no” and “no”, but there’s a bit more to it than just that.

        The first question “without AirBnB would owners just rent them out?”. Well, I built myself a beach house. I’ve never let it out, but I’ve got all the approvals to do so if I chose to. But would I rent it out as a permanent rental? No way. My sister in Victoria sometimes lets out her PPOR if she’s away for a week or more for whatever reason. Would she permanently rent out her PPOR?

        However I agree that many people would long-term let out their AirBnB properties, but probably less than half of the properties that appear to be available.

        Second and more important question “Thereby alleviating the current status quo?”. No. Firstly there has been short-term letting forever. 30 years ago me and my mates used to short term let beach houses in South Australia managed by a local agency (Dodd & Page) that specialised in short term rentals. Does AirBnB increase the amount of short term rentals? Probably.

        However, Australia is completing 200,000 new dwellings per year (2% of Australia’s housing stock every single year), and short term rentals have over years slowly drifted up to 1% of Australia’s housing stock (not 1% per year – 1% total), 1/3 of which are just a room in the house or a granny flat, and many of the others of which are PPORs or beach houses which would never be permanently let.

        Sure, if you banned short-term letting overnight you might drop rents by $10/week for a few months as more rentals hit the market and before the new equilibrium forms, but it’s a drop in the ocean as to what the real drivers of the rental crisis and associated homelessness crisis are.

  2. UpperWestside

    I note that a number of the Airbnb rental seem to be people who rent out their own home and go camp on mum and dad or friends for a few days in return for the cash.
    I also note that the retirement villages and nursing homes are somewhat empty. The village that my mother is in ( which is fabulous BTW) has a large number of empty apartments. Resort facilities, a great social life and the magic green help buttons in all rooms ( those magic green buttons are what saved my mum some years back). Ditto the nursing home my dad was in until Tuesday. It has a large number of empty rooms. It is also fabulous, hotel like facilities, wonderful caring staff and surprisingly well priced.
    If you can get some downsizing into these spaces it frees up the bigger houses and apartments.

    • drsmithyMEMBER

      It has a large number of empty rooms. It is also fabulous, hotel like facilities, wonderful caring staff and surprisingly well priced.

      But….? (Sounds like there has to be a catch.)

  3. Cost of holiday rentals skyrocketed due travel restrictions, so the stock converted to short term to capitalise. Easy solution is to add levy to short term rentals and use it to build public housing.

    • The trend –
      1. Cannot travel overseas for holidays because of the pandemic that we had to have (lol)
      2. Alternative – holiday within Australia, require accommodation, look at AirBnB, why because as a Victoria, the dictator and chief made sure my family could not have a holiday (we did, often just 5kms from our home).
      3. Those with available properties soon realised that they could cash in (fair) and so up prices went. More people saw those prices and jumped in. Supply increased significantly, however demand is now decreasing, as we are allowed out again, travel overseas.
      4. The market will correct itself in time.
      Background, just returned from 12 days in QLD, holiday rental, the cost of the holiday including car rental was the same as travelling around the USA for 41 days 3 years prior.
      Once people become comfortable travelling again o/s, a lot of these AirBnB properties will go back to long term rentals.
      Changes could happen faster, if the ATO cracked down on AirBnB property owners, who think that it is not taxable income unlike long term rentals.

      • I think the ATO is very aware of Air BnB owners. They cross track Air BnB listings with who owns those properties.

        As for the holiday in Australia theory – would that not be offset by foreign tourists coming here? Or are they less likely to stay at Air BnBs?

        • Interesting point. So I can only reference data personal to me. My brother inlaw, AirBnB his place out in the Victorian hills, during Covid (no oversears travel for us Vic’s), he doubled his rates (100% increase from pre covid) and was still at 95% capacity, this year he has had to reduce his rates to +25% pre covid to remain at 95% capacity = reduced demand.
          I have also seen the same situation to friends who holiday let out their places.
          Why would I pay $300+ per night for a modest home in Australia for a 14 day holiday, when I can go to Bali or other places for $80+ a night, like for like places.
          Once people are willing to travel O/S again, the dynamics will change again.

        • Aussies spend far more overseas that overseas visitors spend here. Plus stimmies meant lots of cash sloshing around. When Melbourne lockdown ended short term rentals were 5K/weekend down on the mornington peninsula. Absolutely insane. I also suspect many “flee the city” boomer boltholes bought sight unseen were then converted to B&B, a holiday house that pays for itself on equitymate interest rates.

          • I can confirm that rates on the coast, $5K per week, and that was for an average beach shack, I only paid that due to the fact I had been denied a holiday for 2 years due to our dictator in chief, Mr Andrews. However, given border restrictions have relaxed, there is no way in the world I will pay that again for a holiday in my own country.
            If lockdowns happen again, I will be relocating my family to another country and I love this country, but the lockdowns took an emotional toll on friends and family that was greater than the virus itself, yes people died but that is a simipliest way of looking at a complex problem. If I want to live in a controlled state, China looks better than Victoria.

          • Rent per week based on local incomes couldn’t support much more than $400 per week, but its always been an expensive holiday rental area with a shortage of rentals. It ranges from large modern house with ocean views to beach shack in druggie land. Air B&B hasn’t changed availability except maybe at the bottom end. It’s always been a 6 month lease and kick you out over summer holiday area.

  4. Thank god someone is mentioning this.

    It may not be everything, but I’ve noticed a lot of small units land on airbnb. God knows where their previous occupants are, probably under a bridge or in their cars.

  5. Know IdeaMEMBER

    Coincidentally, I am currently looking for a month’s accommodation in Manhattan. So far, Airbnb is looking hard to beat.

    Yes, I am part of the problem.

    • Tassie TomMEMBER

      AirBnB (or equivalent) offer something that the so-called professional accommodation industry does not. Often that “something” is as simple as a kitchen, a second bedroom, or a yard.

      I often stay in AirBnB places for these reasons. I would be very happy to stay in hotels or professional accommodation if they could provide this, but if they do it is scarce and often twice the price of something on AirBnB which is better.

      I hate paying my “service fee” to a multinational megacompany who probably pay 3% tax on it to the government of Ireland or Lichtenstein and nothing to Australia, but if I want to stay somewhere comfortable and suitable then that’s what I unfortunately need to do.

      • Air B&B is a fantastic deal for the users. Thats why its having the social impact of displacing rentals. So taxes, laws and levies need to be adjusted to make long term rentals more competitive. The obvious is to put a 10% levy on for social housing/subsidies. You could also implement zoning close to hot tourist areas, be it rates our outright bans.

        • Tassie TomMEMBER

          I’m sure the “professional accommodation” chains would love this.

          I’m not pro-AirBnB. I hate the pricks fleecing Australian dollars and paying stuff-all tax. “Fee for no service” I think it’s called.

          However from a “housing supply” argument – Hyatt and Grand Chancellor and Best Western could also be converted into apartment blocks that tenants could permanently live in pretty easily. Are the “short stay” hotels also constricting housing supply for renters?

          If levies or restrictions or zonal bans were imposed on private short-term rentals, then should the same rules also be imposed on hotels and motels?

  6. Spoke to an Uber driver yesterday. He was out at a place called Greendale in Sydney where he saw a huge train station and 1000s of empty homes.
    The person he was dropping off there said the homes will be kept empty for investment purposes

    • Ronin8317MEMBER

      It’s close to the new Badgery Creek airport, mostly just land right now. The people living there will loves the noise from the plane landing 24/7.

      • If you don’t want the houses to ever be lived (some foreign investors don’t) in being near an airport is probably best. On another note though, sad to see what was a nice place to drive through with what I remember having kids theme parks right there turn into the slum warehouse and noisy heat emitting place that it will be once that airport opens.

        Those housing values will be the first thing to fall.

    • elasticMEMBER

      Serpentza on youtube who has done alot of vids on Chinese ghost cities explained that outfitting a home or having it lived in is bad Feng shui because the apartment takes on the karma of the person who has lived there. So the high rises remain empty shells until they can find some one else to flip it to at a higher price.

      • DingwallMEMBER

        ffs … not much can be done if that is an ingrained cultural issue .. that said when the housing economy burns they may change their views.

    • darklydrawlMEMBER

      Heh…I forget there are ads on these sites. Might turn off “adblock” for a bit, just for a giggle.

  7. Andrew RichmanMEMBER

    Isn’t the problem that people just don’t want to be residential landlords anymore. I tried it twice and having residential tenants is such a nightmare. Not paying rent or servicing their motorbike in the middle of the lounge room carpet etc.

  8. DogbertMEMBER

    When travelling with the family including our dogs, I’m very glad airbnb is a thing. Just open up land for development so we have houses and apartments for all the purposes we need.

  9. I’ve often struggled with the economics of renting out to tenants v to Air BnB customers – it’s weird that you can make as much money with far less than 100% tenancy. But I guess the flexibility is of value – that is you can stay in your own property when you need to.

  10. smerferMEMBER

    Check out https://www.neighboursnotstrangers.com/ Crowding out rentals is only one negative aspect of short-term letting. AirBnB is only one of the players. Australia’s regulation of the industry is one of the world’s weakest. The industry flourished on breaching local planning laws aided and abetted by local and state government inaction. Many politicians had conflicts of interest in dealing with the industry.

  11. reusachtigeMEMBER

    Oh stop whinging! We are a free society where free market dynamics should prevail. Airbnb is just satisfying a demand for a particular service.

  12. BillMcLeanMEMBER

    Wouldn’t a lot of people have wanted an extra bedroom to convert into a home office?