9th August 2018
The Auckland Council Bed Tax: What new APTR rates Mean for Airbnb Hosts
Earlier this year, Auckland Council made the decision to begin applying a bed tax to short-term rental accommodation providers. This charge applies to those using Airbnb and other similar platforms to generate income. The aim of this tax is to apply similar fees placed on hotels and other commercial providers, to everyone that is generating an income from visitors to Auckland.
Understandably, these rates have caused considerable backlash in the Auckland Airbnb host community since they began applying from July. At an Airbnb homeowners meeting this week, a number of people were shocked to find their rates rise up to 225%. This upset comes after a record month for New Zealand guest nights in the month of May.
With so much negativity surrounding these changes, things can seem bleak for Airbnb hosts. Not everyone is earning a small fortune on the platform – there are some users who are merely supplementing their usual income. Is it still worth hosting on Airbnb in Auckland with all these additional costs?
The short of the long is that Airbnb hosting in Auckland can remain highly-profitable. However, it needs to be done strategically. With some host’s profit margins diminishing thanks to the Bed Tax, Airbnb users need to work smarter to continue experiencing success on the platform.
Does the Bed Tax Affect You?
When asked by Newstalk ZB whether the Bed Tax will apply to all hosts, Auckland Mayor Phil Goff said “If you are letting out your whole house or apartment they will, if you’re letting out for less than four weeks you’re not covered, if it is for over 180 days you’ll be paying the full business rate and in between there are graduations.”
This means that if you are only letting out one room or if you are only hosting on Airbnb for a few weeks a year, you won’t be required to pay. It’s only hosts that are hosting over 180 days a year that are obligated to pay the full business rate.
There are a number of specifications around payment expectations. The Bed Tax also takes the location of your Airbnb into account when calculating charges. You can find out more about these rates here.
Airbnb Hosting Can Remain Highly-Profitable
There’s no denying that the new rates set on Airbnb hosts will make a difference to the industry. However, unlike the media coverage, the future of Airbnb isn’t bleak. The very nature of Airbnb, in its flexibility and ease-of-use, will allow hosts to adapt and absorb these costs. As the Bed Tax begins to come into play, Airbnb hosts should start to adjust their listing management accordingly.
Minimising the Bed Tax Impact
Like all businesses, Airbnb hosts should increase the costs of their services to reflect their increasing expenses. This means raising nightly rates to absorb the added cost of the Bed Tax. In general, these rising nightly rates will put the pressure on listings to compete more with each other. Hosts will need to start being more aware of the rates of properties similar to theirs and adjust their pricing to fit this.
Imagine you are a strawberry farmer and your government increases the tax on the sales of your goods. You wouldn’t keep your prices the same and lose out on profits. You would increase the price of your strawberries to reflect the tax changes. Airbnb hosting should work in a similar way.
For the most part, these changes will not have a detrimental impact on the amount of bookings hosts are receiving. It’s commonplace for people to undercharge their guests, especially if they are inexperienced. With accommodation in high-demand, it’s entirely realistic to increase rates in response to these added charges.
Airbnb Hosting Will Continue to be More Profitable than Long-Term Tenancies
In the worst case scenario of Airbnb hosts absorbing the cost of the Bed Tax and keeping their nightly rates the same, Airbnb will still be more profitable than long-term rentals. While location is a huge factor in the short-term accommodation industry, hosting generates a much higher return-on-investment than other alternatives – even after expenses.
Currently, Zodiak Management is able to generate around 30-40% higher rental incomes in comparison to long-term rentals – including our management fee. This means that from a hands-free investment (contrasting with long-term tenancy involvement) Airbnb hosts in Auckland can continue experiencing sustainable success, regardless of the new rates.
Will Airbnb Remain Affordable for Guests if Prices Increase?
A massive part of Airbnb’s appeal is its affordability. There is a considerable price difference between booking a property on Airbnb and booking a hotel room. With rising overhead costs, many Airbnb hosts in Auckland are concerned that they will no longer be able to undercut commercial competitors.
The reality is that the Bed Tax will not cause Airbnbs to reach the high prices hotel rooms charge. Hosts will still be able to remain extremely competitive on the platform. The competitive advantage over hotels, combined with a new higher nightly rate, will result in continued high occupancy and overall income for Auckland Airbnb hosts.
The Foreseeable Future of Airbnb in Auckland
In the face of Auckland and New Zealand itself experiencing an accommodation shortage as we welcome what is forecast to be a huge influx of tourism over the next few years, discouraging Airbnb hosts may seem counterintuitive for Auckland Council. Without Airbnb, many tourists to the city may be unable to find anywhere to stay during their time here – the opposite of what the tourism industry is supposed to promote.
As an Airbnb host, it’s important to recognise that taxes similar to what Auckland Council has imposed have been applied in cities all over the world. Cities where Airbnb has continued to endure, grow and thrive. Internationally, hosts have continued to do well on the platform.
While the Bed Tax may seem like an unfair charge, it’s still very possible to generate a substantial income as an Airbnb host in Auckland. Accommodation is in high demand throughout the year, and this is only predicted to grow. Working to understand how these charges are applied and how you can fit them into your hosting strategy will allow you to continue finding Airbnb success.
Zodiak Management, working with sophisticated pricing software and industry experience, can facilitate higher returns for Airbnb hosts in Auckland. If you’d like to find out more about working with the Bed Tax, optimising your listing and becoming more competitive with your Airbnb strategy, please don’t hesitate to get in touch with us for a chat.