The Aussie Airbnb Bubble

There is no question that the property market has changed for buyers.

Property prices continue to fall. According to recent data by Corelogic, annual values for Sydney have fallen by 7.4% and Melbourne by 4.7%.

Yet things are also changing for renters.

A month or so back I read an article about how Sydney property owners were in a bind with the recent downturn. If they sold, they lost money. And renting was tough because there were too many properties on the market.

To compete, property owners were lowering rents.

Let me tell you, I have been keeping an eye on the rental property market in Melbourne, and I see something similar happening here.

There are a lot of new apartments getting finished up. Units are staying on the rental market longer and reducing their prices.

Yet the interesting thing — for me — about the article was that one property owner had a completely different view.

As I recall, he had two properties on interest only mortgages and rented with ‘good tenants’. Yet as refinancing got tougher, and he expected to have to start paying principal, he was planning on either raising rent or selling.

How can you raise rents in a falling market?

Are you prepared for an Aussie housing collapse? Find out before it’s too late.

Well, you probably can’t…unless you go onto a different market.

What I mean is, instead of renting long term, you rent short term by using sites like Airbnb. This enables you to get some extra income to pay for higher interest rates.

According to a recent report by the Australian Housing and Urban Research Institute (AHURI), Airbnb is changing the market for investment properties in Sydney and Melbourne.

As you can see below, Airbnb listings for Sydney and Melbourne have been increasing over time. In Sydney, listings including house shares have gone from 5,000 in November 2014 to 28,000 in December 2017. Much of the demand is seasonal, as you can see in the spikes happening during summer.

MoneyMorning 07-11-18

Source: AHURI

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In Melbourne, things aren’t as seasonal. Yet listings have gone from under 5,000 in August 2015 to aroud 18,000 in February of this year.

According to the report, Airbnb hasn’t had a major impact in long term rental prices…so far.

Mainly because there has been an increase in property supply and there are still a lot of empty properties. 

But, it is having an impact on the amount of properties available in high demand central areas. As you can see below, in Sydney — for the Manly and eastern beaches suburbs — Airbnb listings account for between 11.2% and 14.8% of rental housing stock.

MoneyMorning 07-11-18

Source: AHURI

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In Melbourne, areas like Fitzroy and St Kilda have 8.6%–15.3% of their rental stock on Airbnb.

MoneyMorning 07-11-18

Source: AHURI

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The truth is that more property owners are turning to Airbnb to rent their properties.

Why are property owners turning to Airbnb?

Well, it’s mainly financial. The returns are better than renting the property long term.

As the report noted:

[A] significant number of respondents did indicate that Airbnb income would be used to help maintain their existing housing position (it is worth noting that 71 per cent of the survey respondents who owned their property did so with a mortgage). This supports Airbnb’s claim that STL income is an important contributor to housing security for many of its hosts.

But if rents keep lowering, we could see more property owners jumping onto Airbnb to take advantage of high tourism and get more rental money for their property.

That would decrease the supply of long-term rentals.

That is, even though Airbnb is supposed to disrupt the short-term rental market like hotels, it can also affect the long-term property rental market.

This is something that we have seen happening in Spain, after the property bubble collapsed.

As I wrote recently after visiting Spain, long-term rentals are in low supply.

Many owners are putting their properties into the short-term rental market to get more income to pay the bank as property values dropped with the downturn.

The result is that long term rentals have gone up massively. According to property portal Idealista, rental prices have increased by 15.9% in 2016 and 18.4% in 2017.

The other issue we are seeing in Spain is what AHURI calls ‘professionalisation’ of hosts. That is, a large amount of short-term rental properties falling at the hands of a few professionals or large corporations.

If the property downturn continues, we could see another bubble forming. This time in the rental market.


Selva Freigedo,
Editor, Markets & Money

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Selva Freigedo is an analyst with a background in financial economics. Born and raised in Argentina, she has also lived in Brazil, the US and Spain. She has seen economic troubles firsthand, from economic booms to collapses and the ravaging effects of hyperinflation, high unemployment, deposit freezes and debt default. Selva now writes from her vantage point here in Australia. She is lead Editor at the daily e-letter Markets & Money. And every week, she goes through each report and research note produced by our global network of trusted advisors to find the best investment opportunities for you in Australia and overseas. She packages these opportunities for you in Global Investor.

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