The sharing economy has seen a rise of Uber and Airbnb. Airbnb is a popular website used to book accommodation in advance. It’s similar to booking.com except Airbnb has a greater variety of accommodation types including holiday houses.
The rise in tourism in Auckland has required the city council to upgrade infrastructure etc. To fund this additional expenditure, the council decided to levy a bed tax. The official name is a Accommodation provider targeted rate. It required hotels/motels/ guest houses/ backpackers to pay a “tax”based on the number of rooms that have available for guests.
But recently the Auckland Council also decided to levy owners who rent out their houses on Airbnb a bed tax. Essentially, a tax on providers of short term (where guests stay less than 28 days) accommodation. The tax would be included in the rates invoice. While owners accepted that they should contribute to this bed tax, there was uncertainty as to how much they would pay.
This week those owners who listed their houses on Airbnb found out the answer. Aucklanders who rent out their properties on websites such as Airbnb are reeling after enormous rate rises of up to 225 per cent. A number like 225% doesn’t make sense out of context. In number terms, some owners have increases between $2000 and $10,000.
This substantial increase in rates has meant for some property owners, it is no longer viable to list on Airbnb. This is particularly the case for some apartment owners in the CBD. During March to November, the apartments are usually rented to students. Between December and February, the students leave and owners use Airbnb to fill in the vacancy. Say you rent out a studio in Grafton for on average $70/night for 90 nights from December to February. The income would be $6300. After paying $300 to Airbnb, you are left with $6000. After deducting $1200 for utility (power, water, internet), you are probably left with $4800. And then you still have to buy new sheets, pillows, beddings, kitchenware, TV for the apartment. That will set you back another $1500, leaving you with $3300. If your rates increased by $2000, your profit would be $3300-2000= $1300. After that you still have to pay your body corporate levies. That puts you in the negative. Is it still worth listing on Airbnb?
It is rather unfortunate. At a time when Auckland is getting ready for the America’s Cup, we would expect the council to encourage the private market to supply short term accommodation. A bed tax will only create an even bigger shortage when events are held in Auckland. At a time when the business confidence is waning, the last thing a city needs is more taxes. Unfortunately, the council didn’t see it this way.