Navigating Victoria's Short-Term Rental Levy

The announcement of Victoria's 2025 Short Stay Levy to support Homes Victoria has prompted a review of pricing models and strategies within the short-term rental industry. Cosmo has put together our perspective on the levy and analysed how hosts can work with the changes.

Cosmo supports housing initiatives, with the effectiveness of this initiative to be assessed in the coming years. We advocate for thoughtful regulation to benefit the industry and the community. Hosts play a crucial role in contributing to a positive future for the industry.

What is this state levy?

Effective January 1st, 2025, the recently announced Victorian levy will apply to all short-term properties, specifying a 7.5% tax on the total booking revenue. This concept is increasingly familiar to the industry, and similar approaches are in place overseas.

The proposed levy will not limit the days a property can be available within the region. Although announced as temporary, its purpose addresses specific economic considerations, namely the Victorian housing crisis. However, it lacks sufficient detail on the administration and operational implementation of the scheme.

For example, will the tax be applied at a platform level (e.g. Airbnb) or on a self-reported basis? This question, alongside many other concerns, must be better addressed before the proposed tax is implemented to remove ambiguity.

Victoria's peak tourism body has highlighted the potential negative impact on regional tourism in areas with scarce hotel alternatives. This concern prompts questions about how the tax will specifically impact regional areas within Victoria.

What are the implications of this levy?

While the tax poses an immediate challenge, our analysis indicates that, on average, properties affected by the levy may only see a modest rise in operational costs. The change should require minimal financial adjustments within the industry and could help with short-term rental oversupply.

Nightly Rate Adjustment

Hosts will likely respond by adjusting their nightly rate to compensate for the incurred levy, or they may implement an additional accommodation fee for guests.

For example, two nights at a Melbourne apartment at $480.00 would increase by $36.00, bringing the total to $516.00.

Market Equilibrium Adjustment

A recent Market Report indicates a general oversupply in Victoria's short-term rental industry this year, causing statewide average booking revenue to drop in 2023.

This levy could be a significant catalyst in steering the market toward equilibrium, as properties may switch to long-term renting as supply and demand corrects.

For example, Melbourne's short-term rental supply increased by almost 40% this year, and the average nightly rate in the city decreased by over 10%.

What happens now?

Hosts must stay informed and contribute to the industry's future by working with key industry representatives and adding their voices to the conversation.

Supporting and contributing to the Australian Short-Term Rental Association (ASTRA) will further the industry's ability to communicate effectively with policymakers and ensure fair and smooth implementation of the levy and future legislation.

It is paramount that hosts remain resilient and embrace the evolving market landscape while continuing to provide professional and authentic accommodation and travel experiences.

Cosmo is supporting our owners to ensure a smooth transition for property owners and guests alike during these times of change. We are here for the long run and remain committed to providing exceptional property management and supporting the evolution of the short-term rental industry.

That's all for now. We are keeping an eye on this and will share any updates in future blog posts. If you have any questions, don't hesitate to get in touch with our friendly team; we would be happy to help.