Will 2018 be the year for Airbnb certainty in strata? Guest post by Stephen Thornton

Anyone living in an apartment block has probably noticed the increasing numbers of strangers with rolling suitcases who are obviously staying in Airbnb accommodation. Living in a Toowong apartment tower, I am frequently having to help short-term visitors find their way to Toowong Village. Hence I am delighted to publish this guest post from my friend and colleague Dr Stephen Thornton, Principal of BG Economics, on the increasingly important issue of Airbnb in strata. Views expressed are Stephen’s and should not necessarily be attributed to me. GT 

Will 2018 be the year for Airbnb certainty in strata?

by Dr Stephen Thornton

Queensland should finally be getting some significant changes to strata law this year, 4.5 years after the former Attorney-General Jarrod Bleijie announced that the QUT Commercial and Property Law Research Centre would undertake a property law review. To be fair, it is a big job. QUT have conducted the review in stages with a number of final recommendations reports having been completed and handed to the government.

However, one of the major contemporary policy issues in strata, how to respond to peer-to-peer short-term rental disruptors like Airbnb, was not part of the review. Having only been in operation for five years, the Californian company did not appear on the policy radar when the review was being considered.

I wrote about the benefits of providing a legislative green light to strata owners in this space last year (here) citing the Deloitte Access Economics report Economic Effects of Airbnb in Australia: Queensland in which they estimated that Airbnb guest expenditure is associated with $217.4 million in value add to the Queensland economy, and supports 2,115 FTE jobs across the state.

Just recently, MadeComfy, a short-term rental management company, used data from a commissioned 2017 study by economics and policy consultancy ACIL Allen and combined it with its own data. MadeComfy reportedly found short-term rental (STR) average weekly revenue outperformed the long-term rental (LTR) average in Sydney, Melbourne and Brisbane, with the Queensland capital registering an LTR average of $370 for apartments and $400 for houses versus a STR average of $447 for apartments and $720 for houses (Figure 1).

madecomfy

On the weekend, stakeholders in NSW attended a ‘Strata Matters’ forum to hear strata policy updates from Matt Kean, NSW Minister for Innovation and Better Regulation. On the agenda was the government’s Short-Term Holiday Letting (STHL) review and upcoming legislative response. According to Flat Chat apartment guru and Financial Review columnist Jimmy Thomson, the Minister advised that the government had not yet settled on a model and is still listening to all parties. Jimmy provides some takeaways from the forum here, one of which will also be relevant to Queensland:

The vast majority of people who like Airbnb and may have even used Airbnb don’t mind the letting of rooms in apartments when the owner or tenant is there (what Airbnb says it’s about) but really, really don’t want the commercial letting of whole apartments (by far the largest part of Airbnb’s business).

Anecdotally, I know that many apartment residents, particularly older folk, like the security of knowing who their neighbours are, even if some do turn over every six months (a typical lease period). Noise and other issues can be addressed over time, either informally by way of a quick chat or formally by notice of contravention of a by-law. Many may be less concerned if it were only a room being let every now and then with the permanent occupier being there. Indeed, some seniors benefit from letting a room, too, according to The Senior, with hosts aged 60-90 accounting for 16 per cent of all active hosts in the country, and a typical host income being $6,228 per year. Around 70 per cent of such hosts are women.

Like many economists, I am typically in favour of less regulation, not more. However, the state government will be required to introduce regulation in this space and there may be a case for restricting, but not banning, apartment owners in some buildings operating Airbnb and other similar services to mitigate some of the negative externalities I mentioned around security, noise and the like.

There are five regulation modules that sit within the Queensland Body Corporate and Community Management Act 1997, each of which have slightly different requirements in terms of how a body corporate may operate (see here for more information). Leaving aside the smaller ‘six packs’ and 2-lot schemes, the two residential modules for larger complexes are:

  • Standard Module—highly regulated, suitable for all schemes but especially where most owners live in their own lots.
  • Accommodation Module—less regulated, suitable for schemes where most owners let their lots.

A starting point for future discussion in regard to Airbnb and others might be around restricting residents to only letting out a room or rooms if the resident lives in the dwelling, too, in body corporate buildings subject to the Standard Module i.e. where most owners live in their own lots.

For residents living in strata schemes subject to the Accommodation Module i.e. where most owners let their lots, they would be free to let their entire apartment with Airbnb in addition to just a room if they so wish. I use the term ‘resident’ to mean both the owner and the tenant, although in the case of tenants the owner’s permission would be required to undertake such activities and, indeed, would likely be subject to the terms of individual leases and, therefore, subject to the relevant residential tenancies legislation.

We already have some product differentiation operating in strata schemes in Queensland, as determined in the different regulation modules discussed. Using this module framework to incorporate particular Airbnb rules would not only be a relatively simple task but it would (or should) be easier to understand. In this way, policy certainty could be achieved within the existing regulatory framework, with some amendment undertaken after full examination and consultation.

Dr. Stephen Thornton is a social economist and principal of BG Economics. Disclosure: Stephen owns a strata investment property in Brisbane.

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4 Responses to Will 2018 be the year for Airbnb certainty in strata? Guest post by Stephen Thornton

  1. Russell Rogers says:

    Owners who AirBnB or who have leaseholders who AirBnB without owners permission, even just a bedroom, need to ensure that their insurance will cover any issues. My Landlord’s insurance cover does not allow for any residence to be used as a guest house. It only allows for leaseholders.

  2. Stephen Thornton says:

    Hi Russell, yes that’s an important point. There are a few options out there to cover this but I suspect it’s an often overlooked aspect of this type of letting. The following extract is from this Canstar article in 2016. https://www.canstar.com.au/landlord-insurance/get-extra-home-insurance-before-joining-airbnb-and-stayz/

    Insurance for hosts on Airbnb and Stayz
    Home and contents insurance for short-term rentals is a specialised industry. There are a few specifically-designed products currently on the market, including Airbnb’s Host Protection Insurance, and ShareCover offered by IAG and NRMA. Then there’s landlord insurance, which will cover you for much more than the standard short-term rental policy.

  3. Jim says:

    Stephen

    Great post, and I’m sure Airbnb creates a bit of additional consumer surplus.

    But I’m not sure the economics you point out is particularly robust in providing any evidence of the net benefits, or really informs the case for changes in strata legislation.

    1) “MadeComfy reportedly found short-term rental (STR) average weekly revenue outperformed the long-term rental (LTR) with the Queensland capital registering an LTR average of $370 for apartments and $400 for houses versus a STR average of $447 for apartments and $720 for houses.” This simply doesn’t pass the sniff test. I think these guys have compared average rents for the whole of Brisbane LTR and the stock of STR properties (that are predominantly in the inner city). These are two very different market segments and are simply not comparable. Gratuitous marketing dressed up as research.

    2) The Deloitte Access Economics study concludes “Airbnb guest expenditure is associated with $217.4 million in value add to the Queensland economy, and supports 2,115 FTE jobs across the state.” But what Deloitte’s have actually done is really just put the total expenditure from people staying in Airbnb accommodation into their CGE model and turned the handle to work out a share of the tourism market that stays in Airbnb. Given that Airbnb is really about renting underutilised personal capital, isn’t expenditure on Airbnb just substituting for similar expenditure elsewhere (e.g. hotels)? And it might even reduce short-term consumption expenditure due to self catering. Furthermore it reduces investment in capital (as an app has replaced the need to build new accommodation). Perhaps is is time to be a bit honest in the way economists use this sort of modelling.

    I hope whoever ends up doing the RIS of any changes in the strata title regulations has the ability to see past some pretty dodgy and/or inappropriate analysis….

  4. Stephen Thornton says:

    Hi Jim, yes I agree (mostly) with your points. I was careful to use the word ‘reportedly’ re. the MadeComfy figures and certainly a deeper investigation would establish the veracity of their claims.

    On your second point, I don’t disagree with a lot of what you say here either. However, if Airbnb type accommodation were to be formalised in the Act or regulations (it is occurring now in many strata buildings) then arguably developers might build more apartment buildings to cater for this e.g. instead of a hotel being constructed with ‘x’ number of rooms, a ‘quasi-hotel’ subject to the Accommodation Module is built instead. There are a number of short-term stay apartment buildings already although just how many I’m not sure.

    Personally, I always think more choice is a good thing and digital disruptors like Uber have seemingly ‘upped’ the game of the taxi industry with the increased competition. I can see many similarities between the Uber and Airbnb debates, not least of which involves owners of ‘management rights’, which might be understood in a similar way to taxi plate owners, who have paid in some cases millions of dollars for ‘exclusive’ letting rights in strata buildings. I predict the ‘Airbnb debate’ will dwarf that of Uber largely because it involves people’s homes and there are some significant industry players potentially affected too.

    I suspect the Queensland Government will wait to see what NSW does in this space given it’s nearing the end of their review. But certainly we would need a proper investigation undertaken here too as I pointed out in my article with extensive community consultation.

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