Victoria’s Short Stay Levy: What Airbnb Hosts Need to Know and Do

According to the Australian Bureau of Statistics, Australia is home to about 10.9 million properties and over the past year, Airbnb has seen a staggering 25% increase in listings. Australia ranks 10th globally in Airbnb listings, with short-term rentals growing from 121,000 in 2021 to 132,000 today — a 45% increase. However, this momentum faces disruption as the Victorian government introduces the Short Stay Levy. 

This legislation could have a significant impact on hosts in Victoria. Understanding the levy and adapting to it is important. This article outlines the details of the levy, its potential effects and strategies to help you and your customers navigate the changes.

Image source: Pricelabs 

What Is the Short Stay Levy?

The short stay levy is a tax set to take effect in Victoria, Australia, starting in January 2025. 

According to the Premier of Victoria, the introduction of the Short Stay Levy is a part of the government’s broader effort to address the housing crisis in Victoria. Accordingly, the levy will impose a 7.5% tax on the revenue generated by short-term rental properties, including those listed on platforms like Airbnb.

From 2025 onwards, the Victoria government expects to collect $75 million annually from the short stay levy, with revenue doubling to $37.5 million in 2024-25. More than 36,000 short-stay properties in Victoria bring in more than $1 billion in bookings a year. An average property earns $27,778 annually, but the new levy adds $2,083. 

The levy may result in some owners switching to long-term leases in areas where short-term rentals are less profitable than long-term rentals.

How Does the Levy Impact Airbnb Hosts?

In addition to adding a new expense, the Short Stay Levy marks a significant shift in how short-term rentals are regulated and managed. 

Here's what it could mean for you as an Airbnb host:

• Higher operational costs

The 7.5% levy directly cuts into your profits. For example, if you charge $200 per night for your property, the levy would cost you $15 per night. While that might not seem like much, it adds up quickly, especially if your property is frequently booked. This could force you to raise your rates or absorb the cost, each with its downsides.

• Possible decline in bookings

If you decide to pass the levy cost onto your guests by increasing your nightly rates, you might find yourself less competitive. Guests could opt for cheaper alternatives, including other short-term rentals or hotels that aren't subject to the same levy. This is especially true in areas with a high concentration of short-term rentals, where competition is already fierce.

• Changes in market dynamics

The levy might push some hosts to leave the short-term rental market, either by selling their properties or converting them to long-term rentals. While this could reduce competition for those who stay in the market, it also changes the overall landscape. Fewer short-term rentals might lead to more bookings for those that remain, but the total pool of properties available for short stays will shrink.

How to Adapt to the Levy

Given these challenges, it's essential to develop strategies to keep your business profitable despite the new levy. 

Here’s what you can do:

1. Rethink your pricing strategy

With the levy adding to your costs, now is the time to revisit your pricing strategy. While raising rates is an option, consider how sensitive your guests are to price changes. Check out what your competitors are doing and see if you can implement small price increases without driving away guests. 

You might also consider offering discounts for longer stays, which could help offset the levy’s impact by encouraging guests to book more nights.

2. Boost your property’s appeal

In a more competitive market, standing out is key. Invest in enhancing your property’s amenities and services. Consider offering unique experiences or add-ons like guided tours, welcome packages or local experiences that justify a higher nightly rate. 

By making your property more attractive, you can draw guests who are willing to pay a bit more for a premium experience.

3. Improve your marketing efforts

With the levy in place, effective marketing is more important than ever. Ensure your property is listed on multiple platforms to increase visibility. Use high-quality photos, write compelling descriptions and highlight what makes your property unique. 

Don't forget to leverage social media to promote your listing and consider investing in paid ads to reach a broader audience.

4. Think about long-term rentals

As reported by Mirage News, the government aims to encourage property owners to shift from short-term to long-term rentals. Given this push, converting your property could provide a more stable income with fewer regulatory risks.

5. Explore tax breaks and incentives

As the levy introduces new costs, it’s wise to explore all available tax deductions and incentives to minimize your tax burden. Talk to a tax professional to ensure you’re taking full advantage of deductions related to property management, maintenance and other eligible expenses. Keep an eye out for any new incentives that the government might introduce to offset the levy’s impact.

How Does the Levy Affect You if You Use PMS Software?

A Short Stay Levy adds a layer of complexity if you use a property management system (PMS) like Hostaway. PMS software is designed to simplify tasks like booking, pricing, and reporting. However, with the levy, you must ensure that your PMS can handle these changes.

Pricing and reporting challenges

The 7.5% levy requires adjustments to your PMS’s pricing and financial reporting features. Ensure your PMS can accurately calculate and apply the levy to all bookings. You’ll need to tweak your pricing strategy within the PMS to stay competitive while covering this new cost. If your software doesn't handle the levy properly, you could end up either undercharging or overcharging guests, both of which could harm your business.

How to manage these risks

Here’s how you can stay ahead of these challenges:

• Contact Hostaway: Reach out to Hostaway to find out their plans for handling the levy and when updates will be available.

• Test updates: Once updates are released, thoroughly test the software to ensure the levy is applied correctly.

• Have a backup plan: Be prepared to adjust pricing manually if your PMS software doesn’t immediately accommodate the levy.

• Stay informed: Keep up with regulatory changes and updates from your PMS provider.

• Consult a tax expert: Ensure full compliance with the levy by getting advice from a tax professional who understands the new regulations.

Long-Term Considerations

The Short Stay Levy is likely just the beginning of increased regulation for short-term rentals. It’s essential to think long-term and adapt your business model accordingly.

Stay on top of regulatory changes

Keep your finger on the pulse by joining local host groups, attending council meetings and subscribing to industry newsletters. The Short Stay Levy might be the first of many new rules.

Diversify your investments

With tightened regulations, short-term rentals could become increasingly risky. You can mitigate the risks associated with any one market or regulatory change by diversifying your investment portfolio.

Engage with your community

Local concerns about short-term rentals are driving the levy. Building positive relationships with neighbors and local authorities can help address these concerns. If you participate in community initiatives or contribute to local projects, you can improve your reputation and influence future regulatory decisions.

Navigating the Short Stay Levy: How to Turn Challenges into Opportunities

Victoria’s Short Stay Levy undoubtedly brings a significant change for Airbnb hosts and property managers. While it introduces new challenges, it also provides an opportunity to rethink and improve your business strategy. By understanding the levy’s impact and taking proactive steps, you can continue to succeed in this shifting market. 

Staying informed, being flexible and consistently finding ways to add value will be important. With the right approach, you can navigate these changes and position your business for long-term success in Victoria’s property market.