Airbnb crackdown set to shift Cape Town’s housing market

A proposed by-law aimed at enforcing Cape Town’s rates policy on short-term rentals is likely to ripple through the entire housing market. What the City of Cape Town is trying is not to introduce a new levy, but to enforce an existing one – and it may set off a chain reaction that reshapes both the short-term and long-term rental markets.

“The City is not revising rates, but improving compliance with existing rates policy,” spokesperson Luthando Tyhalibongo told Daily Maverick.

This may sound administrative, but in reality it is structural. It is not just a policy tweak. It is an intervention in a housing market already stretched by deeper forces such as rising operating costs, constrained supply and growing competition for household income that goes far beyond rent.

At its core, the City’s position is simple: properties used primarily for short-term letting are commercial operations and should be rated as such. This principle already exists in the City’s rates policy, so it’s not new. What is changing is enforcement. The proposed by-law aims to strengthen self-reporting and give the City better tools to identify properties that function as full-time short-term rental businesses, whether listed on platforms such as Airbnb, Booking.com and Lekkeslaap, or marketed independently.

“Any property used for short-term letting the majority of the time is primarily a commercial short-term letting business,” the City said.

For years, this distinction has largely gone un­­enforced. Now, it is moving to the centre of policy. And that shift lands in a market where affordability pressures are no longer just about house prices, but about everything surrounding them.

Supply shock hiding in plain sight

Industry players say stricter enforcement will not ­simply increase costs for Airbnb hosts – it will force decisions. And those decisions could affect the broader housing market. Nick Taylor, managing director of Nox Cape Town, which manages about 200 short-term rental properties, says owners are already modelling their options.

“There are really three choices,” he says. “Stay in short-term rentals and absorb the additional costs, move into long-term rentals, or sell.”

Each path has consequences for supply. If even a fraction of Airbnb properties shift into the long-term rental market, it could ease pressure in a city where rental shortages have become a political flashpoint. At the same time, fewer short-term listings would tighten supply on platforms such as Airbnb, potentially pushing up nightly rates.

This creates a two-sided market adjustment: more supply for residents, less supply for tourists. But whether that translates into meaningful relief depends on something deeper: how affordability actually works.

The instinctive explanation for Cape Town’s housing stress is that prices have run away from incomes. But the data tells a more complicated story. According to independent economist John Loos, though house prices have grown faster than per capita income since 1990, lower interest rates mean that mortgage affordability for credit-dependent buyers has not deteriorated dramatically compared with the 1990s.

In other words, the problem is not just the price of getting into a home. It is the cost of staying in one. Loos points to a sharp rise in operating costs, particularly electricity, water and municipal tariffs, which have increased far faster than income.

Then there is the less visible pressure of competition for income. Over the past three decades, household spending has been pulled in multiple directions. Real spending on communication has surged by about 490%, while categories such as recreation, health and lifestyle consumption have expanded rapidly.

A city already under strain

The backdrop to this policy shift is a housing market running hot. According to Only Realty CEO Grant Smee, Cape Town has more than 26,000 Airbnb listings, ranking it among the top cities globally for short-term rental supply. But the distribution of this stock is uneven.

“Roughly 70% of residential units in Cape Town’s CBD are either hotel-managed or listed on Airbnb,” Smee says.

In a city where the median household income sits at about R14,000 a month, this concentration has become increasingly contentious. A basic CBD Airbnb studio can fetch about R36,000 for a 30-day stay – far beyond the reach of most residents. At the same time, demand continues to build.

Rental inflation nationally has accelerated to 4% year on year, with smaller units such as flats and townhouses seeing stronger increases – a sign of financial pressure pushing tenants down the ladder.

In the Western Cape, the pressure is even more pronounced. Rental inflation reached 6.9% year on year in March, with cumulative growth of 126.7% since 2010 – far outpacing other provinces.

Rather than an effect that could be put down to Airbnb proliferation, it reflects a province that has, over time, attracted a steady inflow of higher-income households drawn by stronger governance, infrastructure and lifestyle appeal. Demand has outpaced supply, and Airbnb has simply amplified that imbalance.

From tourism boom to market recalibration

For investors, the shift may be less about regulation and more about recalibration. Cape Town’s post-Covid tourism boom has driven strong demand for short-term rentals, encouraging a wave of investment in “Airbnb-friendly” properties.

But Taylor cautions that many owners have underestimated the true cost of operating in this market. “It’s not passive income,” he stresses. “It’s a business.”

Operating expenses – including cleaning, utilities, platform fees and management – can consume about 40% of revenue even before financing costs. If properties are reclassified and moved to commercial tariffs, the additional municipal costs could further compress margins. This pressure may ultimately drive behaviour.

“In terms of the proportionate additional expense, based on our initial modelling across a sample set of properties, it ranges between 4.5% and 6.5% of revenue,” ­Taylor told Daily Maverick.

Rather than exiting the market entirely, many ­owners are expected to adapt. One likely strategy is to ­limit short-term letting to peak periods, when returns are highest. By doing so, owners could generate the bulk of their annual income while staying below whatever threshold ultimately defines “commercial use”. Others may adopt hybrid models, combining short-term rentals in peak months with medium- or long-term leases during quieter periods.

A key question is how effectively the City can enforce its approach. Officials say the policy will be “platform agnostic”, applying regardless of how properties are advertised. But in practice, enforcement is likely to rely heavily on data from major booking platforms. That leaves a grey area for privately marketed rentals, which may prove harder to monitor.

Although the proposed by-law is still under discussion, its direction is clear. Cape Town is not trying to shut down Airbnb. Nor is it introducing new taxes. What it is doing is reasserting the basic principle that property use matters. If a home is operated like a business, it will be treated like one.

But the unintended consequence is that this distinction lands in a market already shaped by deeper structural forces – rising operating costs, supply constraints and a growing squeeze on household income.

More long-term rental supply could ease pressure for residents. Tighter short-term supply could push up tourism pricing. And investors, caught in the middle, will have to decide where they fit. DM

This story first appeared in our weekly DM168 newspaper, available countrywide for R35.