Cape Town to crack down on Airbnb

Cape Town Mayor Geordin Hill-Lewis says the city intends to change tariffs for permanent short-term rentals.

This followed complaints from Cape Town residents who felt they were being priced out of the city due to short-term rentals pushing up property prices.

The city is Airbnb’s most popular destination in South Africa and helps accommodate numerous tourists and digital nomads annually. According to Hill-Lewis, it has also created over 100,000 jobs so far.

However, in a Daily Maverick interview, he said that permanent short-term rental property owners can’t offer services similar to those of a hotel and expect not to be taxed like one.

By “permanent short-term rentals”, Hill-Lewis said he was not referring to listings where homeowners rent out a side room or granny flat but to property owners who offer rentals as their primary business.

Hill-Lewis said he is working on changing the taxes charged for these properties from residential to commercial tariffs.

Data from Inside Airbnb noted that Cape Town’s top six profiles own and control a combined 681 listings, 678 of which are entire houses or apartments.

This illustrates how the platform is straying away from its intended purpose.

In their original pitch deck to investors, which helped them secure $600,000 (R10.5 million), Airbnb founders Brian Chesky, Joe Gebbia, and Nathan Blecharczyk used the slogan “book rooms with locals rather than hotels.”

The three believed their platform would help travellers save money, help hosts make money, and let tourists experience the local culture, as hotels create a disconnect from the city.

This vision has only been realised to a certain extent, as Airbnb mentioned in a recent report that 49% of hosts said the extra income helps them afford their homes, and 50% say it helps them afford the rising cost of living.

Hill-Lewis also recently said, when asked about the impact of the influx of digital nomads, that the problem of locals being priced out of the city could be solved on the supply side.

The mayor said the city’s very lengthy planning approvals process, which can take two years or more for a block of flats, is slowing down the supply of affordable accommodation in Cape Town and ultimately pushing up the price.

Airbnb lucrative

The potential economic benefit of Airbnb has incentivised Cape Town property owners to rent out properties on a short-term basis instead of over the long term.

Data analyst Melville du Plessis recently compared the number of long-term rentals to short-term rentals in Cape Town Metro.

Of the 7,918 rentals available in the 61 square kilometre area, only 547 are long-term rentals or 6.9%.

While this metric does not compare total short-term listings to total long-term listings, it illustrates the supply of long-term listings.

It also excludes areas generally out of reach of most people’s budgets, such as Camps Bay, Fresnaye, and Clifton.

Short-term rentals prove far more lucrative when looking at the difference in return between the two markets.

Comparing the average daily rate, short-term rentals were 271% more expensive than long-term rentals.

Looking at the monthly return of short-term rentals and assuming a 50% occupancy rate, only three of the ten suburbs offer a higher income from long-term rentals.

Only Realty Property Group CEO Grant Smee says that he has noticed the increased demand for properties intended for short-term rentals.

“There is a large speculative market when it comes to Airbnb. On the rental side, hosts will rent a property and then re-rent on Airbnb, pushing up the long-term rental prices and limiting stock for renters,” Smee said.

“There are speculators and investors buying property for Airbnb, often paying a premium for that property because the returns are much higher on the platform. This also pushes prices up.”

Smee pointed to the example of the Atlantic Seaboard area — which includes areas like Camps Bay and Seapoint — where any available property suitable for Airbnb is snatched up. He said this created ongoing momentum of price increases.