Short-term thinking on rentals doesn't help owners

Affordability isn’t just an issue for buyers, it’s also a problem for renters and it’s one that is exacerbated by the growth in short-term rentals.

In Sydney particularly, the gap between the median household income and the median rent is growing as is the temporary accommodation market.

But is it financially beneficial for owners to offer their properties on a short-term basis and what happens to everyday renters who still need a place to live?

Just how unaffordable is rent in our capital cities?

The gap between the median household income and rent is particularly large in Sydney. Picture: realestate.com.au

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Housing or rent stress is defined as a household spending more than 30% of their total income on either rent or a mortgage. With wage growth remaining low and rent prices going up and up, Sydneysiders in particular often need to spend more than that 30% on a rental property.

A household in the Harbour City needs a median income of over $150,000 to avoid rent stress, yet this is significantly more than the median household income.

The University of Sydney has recently estimated that 6,000 homes in the city have been taken out of the long-term rental market and are now available on short term rental platforms like Airbnb.

For a city already struggling with housing supply, this makes renting even more expensive and forces more people into housing stress.

The reason this is happening is simple. Short-term renting makes financial sense for landlords who think they can get more tenants in on higher nightly or weekly rates than they would charge for a long-term tenant.

This might seem like a win-win, but owners need to really understand their local market before they dive into short-term renting.

Why short-term rentals are risky for landlords

The simple fact is not every suburb is suitable for short-term renting and owners needs to carefully research market demand.

In many regional holiday destinations, the majority of income is earned during the summer months. These areas may not appeal to long-term renters due to factors such as travel times to the nearest CBD. In winter, it may not be possible to find a renter at all for these locations.

Owners need to weigh up potentially losing income on nights or weeks when short-term tenants can’t be found against how much income a property could earn with a long-term renter.

In capital cities, where there are plenty of stable tenants who prefer long-term leases, the difficulties in managing short-term rentals may well outweigh that temporary income lift.

Inner suburban and beachside locations may attract people travelling to the city for a holiday or a short-term work contract, but beyond that, demand is far more sporadic.

Potential property damage is another risk that owners need to take into account as we’ve all heard horror stories of homes being trashed by users of some short-term rental platforms.

Sydney’s unique renting problem

In Sydney, the low availability of hotels and other forms of short-term accommodation can make short-term renting profitable for some. But that’s just not the case for all owners.

This city needs more hotels and holiday accommodation in order to remain an affordable tourist destination.

Sydney currently lacks affordable hotel rooms and overnight rates for hotels here are now far higher than equivalent accommodation in any other capital city.

But there also needs to be more investment in the Sydney property market and more construction to create viable long-term rental properties.

This city cannot afford to keep losing workers to other cities with more affordable rental markets which is what will happen if supply doesn’t improve.

 REA’s Chief Economist provides opinions based on current market conditions.  These opinions should not be treated as investment advice. Always obtain advice based on your individual circumstances.