Navigating the New 7.5% Short-Stay Levy: Why Long-Term Rentals May Be the Smarter Choice

As 2025 arrived, we were left navigating the new 7.5% short-stay levy. The Victorian Government introduced a levy on short-stay accommodation, which took effect on January 1. This levy applies to homes, apartments, and private rooms in properties that are not principal places of residence – including granny flats and tiny homes.

While there are some exemptions, they are limited to hotels, motels, and principal places of residence – even if the home is temporarily rented out while the owner or renter is away. Additionally, bookings that exceed 28 consecutive days are also exempt.

Short-term rentals can seem appealing due to their potentially higher nightly rates. However, this new levy adds to the growing list of challenges for owners of this type of investment property.

This brings a timely reminder of the advantages of long-term rentals compared to short-term options.

Advantages of Long-Term Rentals

• Income Stability: Unlike short-term rentals, which rely on constant bookings and seasonal fluctuations, long-term rentals provide steady and predictable income. This stability helps with financial planning.
• Less Wear and Tear: Long-term renters generally treat the property as their home. This leads to better upkeep and less damage compared with the frequent turnover and occasional misuse that can occur with short-stay guests.
• Set-and-Forget Model: Long-term rentals generally require less hands-on management. With a property manager in place, your investment can be predominantly passive. In contrast, short-term rentals demand more attention, from managing bookings and guest communications to cleaning and maintenance after each stay.
• Social Responsibility: Choosing long-term rentals can contribute positively to the community by providing stable housing options. This aligns with the growing focus on social responsibility in property investment.

Drawbacks of Short-Term Rentals

• Government and Council Regulations: In addition to the new levy, some councils have placed restrictions on the amount of time a property can be rented out. This means the property could be empty and non-income generating for long periods.
• Insurance Considerations: Insurance coverage can be impacted by the length of time the property is vacant. Some providers will not insure properties left empty for long periods. They may also require specific policies for short-term rentals, which can be more expensive than standard landlord insurance. Some policies exclude damage caused by short-term guests.
• Community and Neighbourhood Impact: Short-term rentals can create friction with neighbours due to noise, parking, and increased foot traffic. Long-term rentals, however, tend to integrate more seamlessly into the community and foster better relationships with neighbours.

Ultimately, while short-term rentals may seem attractive due to higher nightly rates, long-term rentals offer greater financial security, peace of mind, and a more straightforward investment strategy. With the introduction of the new levy, now is the perfect time to review your investment strategy and determine which approach aligns best with your financial goals.

 Navigating the New 7.5% Short-Stay Levy

As always, we are here to help you navigate your investment property journey. Reach out to enquiries@livingmelbourne.com.au to see how we can help.