By Meng Cheong & Natalie Wang

Is Melbourne reducing the land tax threshold the only rule targeting property investors this time?

The Allan Labor Victorian government has made a big move, and this time the focus is on cracking down on short-term rentals. Not only might landlords need to be licensed, but they might also undergo an annual audit and pay a 7.5% short-term rental tax. This further squeezes landlord who are already dealing with high loan interest rates, potentially forcing them to sell their properties, increasing the housing supply, and putting downward pressure on property prices.

 

So, what exactly are the specific policies?

Currently, the second reading of the Short Stay Levy Bill 2024 (Vic) was moved on 28 August 2024 and is set to come into operation on 1 January 2025. The legislation introduces a 7.5% levy on short-stay accommodation bookings, including bookings made through platforms such as Airbnb and Stayz.

There are around 63,000¹ short-term rental properties in Victoria, with nearly half of these in regional Victoria. Almost 50,000 of those properties are entire homes that are not available for long-term rental.

The government aims to increase the compliance costs for short-term rental property investors and make Airbnb less profitable through taxation. This will pressure landlords to either abandon short-term rentals, switch to long-term rentals, or sell their properties to increase the availability of long-term rentals for local Australians, thus reducing the pressure on rising rents. The goal is to improve the lives of Melbourne residents, but for property investors, it could close off their income streams. The new rule has been announced as part of the landmark Housing Statement, the final policy has been informed by consultation with local councils, industry and tourism bodies to get the balance right for communities across Victoria.

The levy will not apply to a homeowner leasing out all or part of their principal place of residence for a short stay. When a homeowner goes on holiday and someone else stays there temporarily, the levy does not apply.

The government is also giving local communities the ability to respond to local concerns, with owners’ corporations now able to ban short stays in their developments if approved by 75 per cent of owners. Additionally, changes to the planning system will give local councils the power to regulate short-stay accommodation.

Another issue this may lead to is subleasing. If investors want to find an alternative to Airbnb, they might consider subleasing to maintain the relatively high rental income. While this may not be a concern for CBD apartments, it could be an issue for suburban houses. Owners will need to apply to the council if they are subleasing to more than three people, as this would classify the property as a ‘rooming house.’

Furthermore, we can speculate that along with the current trend, local governments may continue to squeeze the operating profit of short-term rentals and increase compliance costs. After the introduction of the licensing requirement, additional measures could follow, such as landlord training courses, commercial insurance, government inspections, etc.

 

Victoria property taxes today

Currently, Victoria has the highest property-related taxes in Australia. In 2023, the land tax threshold was lowered, resulting in higher taxes for property investors. This was followed by the foreign Absentee Owner Surcharge, and now, with this move targeting short-term rentals, property investors have more reasons to be concerned.

While there is no precedent in Australia, recent laws against Airbnb in New York have sparked some public discussions. The investment portfolio for real estate investors may need to be updated, with long-term capital gains and long-term rentals perhaps being more favourable in light of the new fiscal approach.

 

¹https://www.premier.vic.gov.au/more-long-term-rentals-and-more-social-homes

Disclaimer: This publication contains comments of a general and introductory nature only and is provided as an information service. It is not intended to be relied upon as, nor is it a substitute for specific professional legal advice. You should always speak to us and obtain legal advice before taking any action relating to matters raised in this publication.