The Melbourne suburbs flush with holiday rentals, but homes are hard to find

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Key points

• A growing number of short-stay rentals are adding pressure to Melbourne’s rental market.
• Short-term rental listings jumped by 39 per cent between April 2022 and April 2023.
• The rental vacancy rate is a tight 0.9 per cent.

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The number of short-term rentals is on the rise in Melbourne, at the same time as the city faces a housing crisis.

Experts say holiday rental listings are not the only reason Melbourne’s long-term rental vacancy rates remain extremely tight, but they are adding pressure to a market already facing several challenges.

Short-term listings have risen over the past year even as the rental vacancy rate fell, according to analysis of Domain rental vacancy rate figures and AirDNA data – which compares Airbnb and Stayz listings.

The number of short-stay rental listings in Melbourne jumped 37 per cent from April 2022 to April 2023.

They are now 11 per cent below where they were in 2019 before COVID-19 hit and borders closed to tourism.

The data did not reveal how many properties were used purely as short-stay rentals, or how many were private homes with spare rooms sometimes rented via short-term sites.

The City of Melbourne had one of the largest numbers of short-stay listings in April after a 44 per cent jump over the year, from 3498 listings to 5051.

Over the same time, the vacancy rate fell by 0.6 percentage points to 1.8 per cent.

In a similar trend, Port Phillip’s vacancy rate fell 1.5 percentage points, to 0.9 per cent, as short-stay listings rose by 44 per cent, from 1365 listings to 1959.

The Mornington Peninsula had the largest number of short-stay listings in Melbourne in April after a 45.7 per cent jump over the previous year, from 4550 listings to 5193.

But, as the rush to get away from lockdowns slowed, the rental vacancy rate on the peninsula bucked the trend, lifting by 1.2 percentage points to 2.2 per cent.

Overall, Melbourne’s vacancy rate is a tight 0.9 per cent, inching up from 0.8 per cent in February, Domain data shows.

Melbourne’s rental market faces a range of challenges, including a shift to remote work that increased demand for space.

Domain chief of research and economics Dr Nicola Powell said while short-term rentals had a “phenomenal” impact on the property market, a lack of new housing stock – including social housing – also had an impact, alongside a drop in the number of property investors buying in.

Some inner-city buyers opt to rent out their property on a short-stay site when they’re not using it, agents say.Credit: Dion Georgopoulos

Returning holidaymakers are encouraging property investors to return to the short-stay market, after they shifted to the long-term market during border closures, she said.

“I think we have seen the reversal of the rent reductions we saw during COVID,” she said. “We know Sydney and Melbourne have received more overseas migrants than any other city, so there has been a lot of population growth.”

Professor of urban and regional planning at the University of Sydney Nicole Gurran called the rise in Airbnbs alarming.

“You have an increase in the number of properties on the short-term rental market … when rents are rising, and we’ve already got a shortage of rental accommodation,” Gurran said. “Is it the whole problem? No it’s not, but if you could wave a magic wand and suddenly release 2000 homes into the … rental market, it would provide a lot of relief.”

Gurran said between a fifth and a third of short-term stays, depending on the market, tended to be whole homes frequently rented out.

She backed plans for caps on the number of days properties could be rented out on short-stay sites, but said there should be flexibility for cities and popular holiday spots to choose appropriate caps.

Harcourts Melbourne City director Dionne Wilson said property investors were becoming a rarity in the inner city.

About 70 per cent of enquiries she received pre-COVID were from prospective property investors wanting long-term rentals. That has now dropped to between 5 and 8 per cent, she said.

“Very few want to buy into the traditional rental market,” Wilson said. “It’s either people wanting to be owner-occupiers or a lot of people wanting to use the property as a pied-à-terre – an occasional residence – that they can rent out on Airbnb when they’re not using it.”

Michael Crosby, Airbnb’s head of public policy for Australia and New Zealand, said housing affordability was a challenging issue for governments, but said other factors were to blame for long-term rental shortages.

“The causes differ from place to place, with legacy factors – which often pre-date the founding of Airbnb by decades – ranging from the supply of new homes, the ratio of public housing, the number of empty dwellings and rooms, interest rates and broader economic conditions,” Crosby said.

“While short-term rentals generally comprise a tiny proportion of the overall property market, we’re keen to keep finding ways that we can make a positive contribution to this important issue.”

Airbnb suggested a series of measures last year, including a register of all short-term rentals to allow government to make data-informed decisions.

Stayz director of corporate affairs Eacham Curry said short-term rentals were not the problem nor the solution.

“The problems the nation is currently facing have been decades in the making and are more likely the result of costly and arduous planning approval processes and too little land being released for housing development.”

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