'It ends up eating itself': Byron Bay Mayor Michael Lyon on the holiday rentals crushing local tourism economies

"He had a vegetable garden and we swapped produce over the back fence. I'd take him over meals. We had a great relationship," she says.

After he died, the house was sold. Cr Findley laments what happened next.

"Not only did they turn it into a short-term rental but they subdivided the block and put another short-term rental on it."

Two houses just near the primary school and within an easy walk of the town's shops were lost to locals. And in a town where cafes and restaurant struggle to find staff to stay open, a town which is 10 minutes from the beach.

"My own kids grew up in that neighbourhood, knowing everybody in the whole town. There wasn't a street that they didn't know kids."

At the other end of the state, in Byron Shire, mayor Michael Lyon tells a similar if not more intense story.

"We've had sporting teams that can't field teams because they haven't been able to provide the right amount of people and helpers," he says. "There's more people in Byron Shire sleeping rough - 300 - than in the City of Sydney. That's gone up 50 per cent in two years."

Cr Lyon presides over one of Australia's best known holiday destinations but says the tourism economy on which it depends is beginning to eat itself - and part of the problem is the high level of short-term rentals, which are forcing people who work in the town far from their place of employment.

"The joke used to be that workers would have to go and live in Casino [78 kilometres away] because that was the only place they could find a home. The sad part of that joke is that there are no homes in Casino anymore."

A number of factors have pushed rents beyond the capacity of ordinary workers to pay in Byron. Over four years the area has faced fire, COVID, floods, rising property prices and, now, a cost-of-living crisis. Also making life difficult is a surge in short-term rentals, which account for 8.4 per cent of its almost 17,000 dwellings.

Byron Bay restaurant operator Ralph Mamone now opens on reduced hours. When the pandemic closed the borders and shut down tourism, many of the town's hospitality workers left. When domestic travel resumed and the tourists flocked back to Byron, there weren't enough staff to keep operating at pre-pandemic hours.

"We had customers coming in the door but we had no staff. Then we had the floods plus the housing prices going through the roof and that meant that we had very little accommodation." Mr Mamone and other restaurateurs took on expensive rental leases to house their staff. "We tried to work it so that we'd try to source some accommodation as well as a job."

Cr Lyon surveyed 400 business owners in Byron Bay, 92 per cent of whom agreed that stronger regulation of short-term rentals was required.

"Over summer last year retail and hospitality businesses were working reduced hours, weren't opening some days, because they had no workers. It ends up eating itself. It's not just your minimum wage workers - obviously, they're the ones getting hit the hardest - we can't get planners and engineers to work at council. The holiday letting industry will say it's bad for the economy to limit it but it's actually bad for the economy not to, because if you haven't got workers, you're being held back."

Byron business owners tell of staff forced to live in Lismore, Coolangatta and even the Gold Coast, which is more than two hours away. They say the commuting time not only makes it difficult to recruit staff, it makes absences at short notice, such as sick days, extremely difficult to cover.

Last year, it appeared Byron Shire's decade-long effort to cap the number of days a property could be let as a holiday rental in any given year had borne fruit. After agreeing to a short-term rental cap of 180 days for a number of local government areas, the previous NSW government agreed to the council's request to determine its own caps. But the day before the delegated authority was to come into force, the offer was withdrawn pending an Independent Planning Commission review.

That review came back with 12 recommendations, among them a 60-day cap on short-term Byron rentals along with a development pathway for owners to exceed the cap. But a council request for the NSW Planning Department to act on the recommendations has been met with a thinly veiled threat to remove the shire's planning powers if it did not spell out its forward housing strategy, a strategy it can't complete until the end of the year because it's been held up, according to Cr Lyon, by the same department.

"It's completely extraordinary this idea that we would be giving them proof of our housing strategy before we'd done a residential strategy," he says. "It's part of the puzzle, part of the response to the housing crisis is to make sure you don't keep losing housing to holiday letting."

A spokesman for the department says by 2041, Byron Shire is expected to reach a population of 44,500.

"The IPC acknowledged that managing the impacts of short-term rental accommodation is only one part of addressing Byron Shire's housing supply and rental affordability issues. It also identified that the housing market and housing pressures are different in Byron Shire than in other Australian locations.

"Given these unique and exceptional circumstances, it is imperative council has a plan in place to address its housing pressures to help with both availability and affordability issues."

Eurobodalla, also on the NSW South Coast and a favoured beachside getaway for residents of Canberra, has not been immune to the housing crisis but took a different approach to short-term rentals. Last winter, mayor Mathew Hatcher wrote to the owners of holiday homes appealing for them to convert properties to long-term rentals.

"We had great success. We had upwards of over 80 homes come back on to the market," he says. "In the letter we asked to please do it for 12 months or more - six months doesn't really help. We tend to get a lot of those anyway, ending at the end of our down or winter period. People being kicked out just before Christmas isn't very handy.

"We also pointed them to real estate agents so they did it through the correct channels and it wasn't a council-led initiative, it was just simply me asking it."

Eurobodalla is one of the few regions in NSW where rents have fallen - by 7.9 per cent - and the rental vacancy rate has risen.

"We knew there were some people who had multiple holiday homes in the area and even if it was just one of those changing from short-term to long-term, it would get a bit more balance in the market. It definitely surprised me. My goal was to get around five, we had well over 80 that came back on."

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The irony, Cr Hatcher says, is that Eurobodalla pushed for years for people to move to the shire permanently and work from home. The pandemic ensured its population grew faster than anticipated.

"COVID just pushed that increase so much quicker because people can work for the state or federal governments and work at home and almost use Canberra as their holiday destination," he says.

Byron tried a similar appeal to property investors but Cr Lyon said not a single short-term rental converted to long-term. "All we got were nasty responses saying we were trying to take away their livelihood," he says.

Shoalhaven's mayor Findley doubts a one-size-fits-all approach to regulating short-term rentals will work. In her local government area, there are some settlements where there is no going back.

"We've got villages like Hyams Beach and Currarong that are never going to be part of the solution. Trying to put a cap on them is a blunt instrument to solve a difficult problem." In Currarong, north of Jervis Bay, Cr Findley says, there are so few remaining permanent residents that the doctor was forced to close their practice.

"We used to have local environment plans that were reasonably sophisticated and had lots of different zones and allowed councils the ability to say yes, no, maybe in different locations. Over the years the planning system has been dumbed down and tried to be one-size-fits-all. We would like to have the care and management of where short-term rentals can go as opposed to just being everywhere. We want a more sophisticated approach so that we don't tank the tourism economy because we just don't have the immediate replacement for all of those holiday houses."

Cr Findley says the 5000 registered holiday homes in Shoalhaven should be treated as businesses and charged for services accordingly, with the extra revenue going back to council to fund social housing initiatives. And she adds the value of short-term rentals to local economies is overstated.

"When the short-term rentals are full, sure you get an economic boost but they're not here all year round and it ends up having a detrimental effect on the businesses that are here already," she says.

"If there were people living in the house next to me they'd need bread, milk papers. If they had kids at school, they'd need to buy shoes. They're contributing to the economy 365 days a year. Whereas the short-term rentals don't. They don't even necessarily contribute to the economy when they turn up. A lot of people turn up with full Eskies and the box of beer they've bought in their own community. The only economic contribution is to the short-term rental owner."

With March quarter visitation figures showing an increase, Cr Lyon says action on short-term rental regulation is urgent.

"We've been the canary in the coalmine," he says. "We were complaining about this for six years, ever since I've been on council, I've been on this issue, seeing it happen before my eyes but it's increasing. Anywhere which is even remotely a tourist destination has got this issue."

An example of the growth in short-term rentals can be found in Port Stephens, north of Newcastle, where data analytics firm AirDNA reports a 12 per cent increase in the past year, up from 1433 listings in July 2022 to 1605 in July 2023.

While supporting regulation of short-term rentals, Airbnb country manager for Australia and New Zealand Susan Wheeldon warns: "When it comes to a nights cap, councils need to consider the damage this will have on tourism, as well as small businesses, guests and Airbnb hosts who rely on Airbnb to make ends meet.

"Instead, in tourism hotspots like Byron Bay, we'd like to see the introduction of a tourism levy. It would work by guests paying a small fee, about the cost of a cup of coffee, at the time of booking, rather than home owners copping a council rate hike," she says.

"This would mean every accommodation booking contributes to new housing projects or supports local infrastructure. Airbnb has worked with many cities around the world to make this visitor levy work, remitting $US7billion in taxes globally."