Brokers raise concerns over NSW rental rules

Under these new regulations, non-hosted short-term rental accommodations in the shire, which includes areas like Byron Bay and Mullumbimby, will be limited to 60 days per year, down from the previous allowance of 180 days.

This change comes following a recommendation from the Independent Planning Commission to tighten short-term rental caps and coincides with the Victoria government’s announcement of a 7.5 per cent levy on short-stay accommodation to encourage long-term rentals.

Minister for Planning and Public Spaces Paul Scully explained that population growth in Byron, alongside the impact from the flooding event in early 2022 and limited new housing completions has resulted in a perfect storm of “very tight supply and high prices in the residential housing market”.

“Byron Shire’s housing pressures are different to other NSW locations, with the percentage of short-term rentals exceeding that of similar destinations,” Mr Scully said.

“This decision will support permanent housing in residential and rural areas, helping key workers and long-term residents who are being increasingly priced out of this market.”

Byron Bay brokers unconvinced

Managing director at Entourage Finance, Damien Roylance, disagrees with the move, suggesting it might worsen the housing problem.

He argued that some investors may opt to rent their properties only for the allocated time, leaving them vacant for the remainder of the year.

“A vacant property is probably the worst possible outcome for everyone,” Mr Roylance said.

“If councils want to get investors to open up their properties for long-term rentals, they need to incentivise them.”

For example, the economics should favor long-term rentals. He explained that, given the median house price in the Byron Bay region is approximately $2.4 million, investors would naturally seek rental rates that align with the property’s value, which might not be considered affordable for the average tenant.

“I know someone who is able to make $50,000 over the Christmas week on their property – they’re not going to get anywhere near this rate on the long-term market,” Mr Roylance said.

He also raised concerns about how councils will actively monitor compliance with the new policy, especially for properties not listed on popular platforms like Airbnb.

Greg Cook, a senior credit adviser at Loan Market in Byron Bay, acknowledged that finding long-term accommodation is difficult and rents have risen, but he isn’t convinced that the new rules are the right solution.

While investors have been drawn to short-term rentals due to higher yields in popular destinations, Mr Cook argued that the serviceability for short-term versus long-term rentals is similar.

He noted that in many cases, there isn’t a significant difference in usable income when comparing short-term to long-term rental values.

“I have seen on many occasions not a huge difference in useable income for serviceability,” Mr Cook said.

“Recently we looked at a refinance for a short-stay rental property, when we took into account the gross revenue and then deducted all the costs outlined in their tax return there was not a huge difference in the usable rental income for the short-stay versus the long-stay rental value for that given property.

“This does not hold when I have looked at high-end properties that attract a much larger than normal short-stay rental value, these properties would generally be used by their owners during the year so they do suit that short-term luxury rental market.”

However, Mr Cook added that the appeal for short-term rentals in Byron Shire may wane as a result of these changes and expects “investors to reconsider how they manage their properties going forward.”

In addition, he had observed more owner-occupier purchases and interest at this time compared to investor purchases, which could be a result of the proposed changes, among other factors.

“Perhaps investors feel that interest rates and the overall economy is not conducive to buying an investment at this time in the property cycle,” Mr Cook said.

Short-term rental rules

The new rules will undergo a 12-month transition period for the community and industry to prepare, taking effect on 26 September 2024, ahead of the 2024–25 summer.

Hosted short-term rentals (where the host resides on the premises during the stay) are unaffected by this decision and can be undertaken 365 days per year.

[Related: Victoria off limits for investors amid higher taxes]