Should short-term rentals in stratas be opt-in?

An interesting proposal today from NSW MP John Sidoti – allowing short-term rentals in stratas should be opt-in, not opt-out.

The idea that short-term rentals would be automatically barred in apartment buildings unless the strata votes to allow them is not something I’ve seen tried elsewhere yet around the world, and it worth considering carefully.

Mr Sidoti is proposing a 75% voting threshold to lift the default short-term rental ban in a strata.

This would have a few advantages. Residents would be protected by default from the bad effects of short-term rentals, which would minimise the disruption to their lives. More importantly, it would reduce the conflict between investors and residents. Investors are buying units now planning to rent them on Airbnb and other sites to pay off their mortgages. If the strata then votes to ban them, their plans are ruined. Fewer squabbles and legal fights is a good thing.

By making short-term rentals banned by default, a short-term rental investor wouldn’t buy units in a building unless they were sure the strata allowed it. This will take some heat out of the housing market in tourist areas like CBDs and beaches.

There’s not a huge difference between the effects of opt-in and opt-out over the long term. Buildings with high proportion of owner-occupiers will likely ban short-term rentals as soon as there are problems or complaints (which tend to happen shortly after the rentals start).

However opt-in will, I think, have a permanent effect on the industry and housing stock in NSW. Inertia and fear of change are powerful motivators. Significantly fewer buildings would jump into the problematic world of allowing short-term rentals than would go to the trouble of banning it if it already exists and gets established.

If investors aren’t relying on having short-term rentals to make their income, more long-term rentals will replace them. And that’s good for renters and first-home buyers alike.

The downside of giving stratas the option to ban short-term rentals – whether opt-in or opt-out – is that it creates two tiers of apartment living. In buildings with mostly investors, most will vote to allow them because returns tend to be better, making life worse for long-term renters in those buildings. In buildings with mostly owner-occupiers, they won’t be allowed, and these residents will have a better quality of life. Rents in the 2nd type of buildings will rise, and will fall in the first, pushing more investors to short-term rentals. We end up with short-term rental “hotels” for some buildings.

However, this gives the residents the right to choose their building’s fate. If stratas have no option to block short-term rentals, then we’ll see the same thing happening but with less control. Buildings in areas with lots of tourists will be slowly converted to short-term rental hotels as residents get fed up and leave. And that will be much worse for our communities.

Which is why any regulation must give rights to stratas to block short-term rentals if they wish.