Short-stay investors reap benefits while renters suffer

Generous negative gearing tax breaks are increasingly propping up the short-stay rental market rather than helping increase the supply of long-term rental homes – and it’s hurting tenants, an alarming new report shows.

The Short-Stay Subsidy report estimates the budget could be losing between $111m and $556m this financial year in forgone revenue through negative gearing deductions claimed on short-stay rental properties.

Across Australia 167,955 homes are estimated to be operating as short-stay accommodation instead of long-term rentals, the report revealed.

These short stay homes were still eligible for negative gearing tax deductions and the Capital Gains Tax (CGT) discount.

If just 10 per cent of these short-stay rentals were negatively geared, the annual cost to the budget would exceed $111 million, the report said.

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Estimated annual value of revenue foregone due to short-stay negative gearing deductions. Source: Everybody’s Home Short-Stay report

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This figure jumps to $556m in estimated annual lost revenue if half of all short-stay investors claim negative gearing deductions.

The report casts a spotlight on renters who say they are being affected by the magnitude of short-stay accommodation, including facing soaring rents, evictions, and in some regions, limited long-term rental supply.

“Everyday people are footing the bill for property investors to write off losses from holiday homes, all while families are being priced out of their communities because they can’t find affordable rentals,” said Everybody’s Home spokesman Maiy Azize.

“Renters across the country are being squeezed by soaring rents and a shrinking number of affordable homes – and in many parts of the country, short-stay accommodation is only making it worse.”

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Maiy Azize

Ms Azize said generous tax breaks for investors, including for short-stay accommodation, are driving wealth inequality and pushing house prices up for everyone else.

“While governments claim to be serious about the housing crisis, they’re doing little to show it,” she said.

“At a time when government funding for public and community housing is falling far short of need, we shouldn’t be subsidising investments in holiday homes and short-stay rentals.”

According to Ms Azize, curbing investor tax breaks for holiday lets is one of the fastest and fairest ways to free up finding for the homes needed.

“If we close these loopholes, the savings could help build more desperately needed low-cost, long-term rentals,” she said.

Over 1,000 results show on an initial Airbnb search for a two-adult stay in Mosman (including surrounding suburbs)

Ms Azize said tax breaks need to be wound back for all investors, but it’s even harder to justify giving these generous benefits to short-stay operators.

“The system is propping up investors who are speculating on short-term rentals during the worst housing crisis in living memory,” she said.

“We shouldn’t be losing public money to underwrite short-stay speculation while millions of people face housing stress, insecurity, or homelessness.”

Tenant frustrations are mounting. Sydney renter Nadia has eight months left on her current rental in Mosman and said the lack of supply was evident. “I’m always searching to be honest,” she said.

Nadia currently pays $750 a week for a two-bedroom in Mosman

“We live in Mosman, my partner and I share. We are just forever not really wanting to live where we live and looking at a better option.”

Both working at home and currently in a two-bedroom property paying $750 a week. Nadia said price is a restriction in the search.

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0/0 Botanic Road, Mosman is a one-bedroom currently listed for $2,100 per week

“We are looking at one-bedrooms now, we pay $750 a week and they are kind of the same price,” she said.

“The other aspect that we struggle with like every renter, is you never end up paying what is quoted even though I know there has been some legislation change, it’s not enough.

“For instance, we moved here in 2023, the advertised price was $675 and we were nudged to offer more to get it – so we were paying more from the start.”

Nadia shared her frustration on homes in the market as accommodation.

21/6 Wyargine Street, Mosman is a two-bedroom currently listed for $3,500 a week furnished

“There’s a place that I walk by in Potts Point all the time, that’s an area that I feel very priced out of, but would very much enjoy living there,” she said.

“I kind of realised the whole building – all but one is Airbnb’d.

“So to know that I can’t afford to live there in that suburb and then literally no one could live there permanently anyway and have it as a home.

This Potts Point one-bedroom apartment is currently listed for $1,200 per week

“To incentivise someone doing that as a tax perspective, when as a full-time working human, I can’t have secure housing, to me it’s unacceptable.”

Now 40, Nadia said she has been renting her whole life and definitely seen the shift in renting following covid and throughout her life.

“Rental inspections, you just expect to see 40 or 50 people there and that’s just crazy,” she said.

“My mum and I growing up would make an appointment with the real estate agent because the rental market was so different.

“Being the age that I am, I’ve seen and lived the exact problem with incentivising property investment because it’s just become a nightmare.

“I feel like I live the insecurity of that every day and it’s only getting worse.

“To me, housing is a human right and not a commodity at the core.”

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