Will Airbnb taxation actually solve Cape Town’s housing shortage?

Young professionals are increasingly struggling to secure long-term rentals, families are renewing leases with significant price increases, and many residents find themselves relocating more frequently than planned; adjusting to a market where availability can change within weeks.

Housing demand, particularly along the Atlantic Seaboard, the City Bowl and surrounding urban neighbourhoods, continues to climb as more people choose to relocate to Cape Town. All while the supply of available homes struggles to keep pace.

Against this backdrop, short-term rental platforms such as Airbnb have become a focal point in the housing debate. Critics argue that the growth of tourist accommodation in residential areas is removing potential long-term rentals from the market and contributing to rising housing costs.

But the question facing policymakers is more complicated than it first appears: if short-term rentals are restricted or taxed more heavily, will that actually increase the supply of housing for residents?

A city in high demand

Few cities illustrate the tension between tourism and housing quite like Cape Town.

Frequently ranked among the most beautiful cities in the world and consistently listed among the top international travel destinations, it has become a magnet for global visitors, remote workers and lifestyle migrants. That popularity has brought economic growth but it has also intensified competition for housing.

Neighbourhoods such as Sea Point, Green Point and Gardens have seen a steady influx of digital nomads and remote professionals who rely on short-term accommodation platforms for flexible living arrangements.

In Bo-Kaap, residents have raised concerns about the growing number of short-term rentals in the historic neighbourhood. The Bo-Kaap Civic and Ratepayers Association has warned that increasing Airbnb activity is accelerating gentrification and threatening the area’s long-standing cultural identity.

Further along the Cape Peninsula, Scarborough - a small conservation village near Cape Point - illustrates how global demand is reshaping local property markets. According to property data from Lightstone, more than half of all homes sold there in 2024 were purchased by foreign buyers, many of whom spend only part of the year in Cape Town before returning to Europe for winter. Average home prices have risen from roughly R2.3m in 2016 to around R7.85m by 2025; an increase of more than 240%. While Scarborough is a small and unique market, the trend reflects a broader pattern along Cape Town's coastline where global demand for lifestyle property is pushing prices well beyond the reach of local residents.

Why short-term rentals became a target

Against this backdrop of rising demand, short-term rental platforms have become an obvious policy target.

The City of Cape Town is now considering regulatory measures aimed at tightening oversight of the sector. A proposed Short-Term Letting By-Law would require properties primarily used for short-term accommodation to pay commercial municipal rates, similar to hotels and guest houses.

Mayor Geordin Hill-Lewis says the proposal is intended to ensure fairness within the tourism industry. “We are correcting the imbalance in taxes. An Airbnb is a decentralised hotel, so it has to pay the same rates and taxes a hotel does,” he said when outlining the plan.

The City has emphasised that the proposed by-law is primarily a compliance measure.

“The proposed by-law will make it harder to game the system by only paying residential rates while operating a commercial short-term letting enterprise,” the municipality said in a statement.

But whether the measure will significantly increase long-term housing supply remains uncertain.

A debate with competing narratives

Some analysts believe the focus on Airbnb risks oversimplifying Cape Town’s housing crisis.

Renier Kriek, managing director of Sentinel Homes, argues that the platform has become a convenient scapegoat. “Airbnb is not the culprit behind escalating rental prices or worsening housing affordability in Cape Town,” he says, pointing instead to structural pressures such as limited land availability, planning regulations and strong inward migration.

Airbnb itself also disputes the idea that short-term rentals represent a major share of housing stock. According to the company’s economic impact data, dedicated short-term rentals account for roughly 0.9 percent of formal housing units in Cape Town, with the platform estimating its activity contributed around R14.4bn to the city's GDP and supported about 42,000 jobs in 2023.

Yet critics argue the issue is not only about the number of listings, but also about where they are concentrated.

“That figure of 26,000 listings is striking on its own,” says Grant Smee, CEO of Only Realty. “But what really fanned the debate was the finding that roughly 70% of residential units in Cape Town’s CBD are either hotel-managed or listed on Airbnb.”

Housing advocacy organisation Ndifuna Ukwazi echoes the concern: “Cape Town already has one of the most unequal urban housing systems in the world. When homes are converted into short-term accommodation for visitors, it can further reduce the stock of housing available to residents.”

Not all short-term rentals are the same

Another complication is that the short-term rental market is far from uniform; and any effective policy needs to reflect that.

Some operators manage multiple apartments as dedicated tourist accommodation, functioning almost like decentralised hotels. Others are homeowners renting out spare rooms, backyard cottages or holiday homes for limited periods.

“These are fundamentally different types of activity,” says property analyst Karen Visser. “A professional operator running ten apartments is not the same as a family renting out their granny flat during peak tourist season.”

For many homeowners, short-term rentals provide a way to offset rising property costs. Cape Town’s tourism cycle also plays an important role: occupancy peaks during the summer months and drops significantly in winter, with some owners switching to mid-term rentals or leaving properties vacant during the off-season. In such cases, those homes may never have entered the long-term rental market regardless of regulation. This raises real questions about how much any blanket policy can actually move the needle on housing supply.

Structural pressures on the housing market

The deeper forces shaping Cape Town’s housing market extend well beyond short-term rentals.

The city’s geography alone creates natural limits on expansion. Table Mountain and the Atlantic Ocean form physical boundaries around much of the central city, leaving limited land available for new development in highly desirable areas.

At the same time, semigration - the relocation of professionals and families from other provinces to the Western Cape - has intensified demand for housing over the past decade. Data from Biggles Removals, a trusted moving company in South Africa, shows that the trend of semigration to the Western Cape continues, but that the pressure on the city’s housing market is also driving residents to look for accommodation in other areas.

Housing trends are shifting in other ways too.

Broader shifts in the property market are compounding the pressure. Across South Africa, a growing share of households are renting rather than owning as rising home prices and higher borrowing costs make ownership less accessible for younger buyers. Cape Town now has one of the tightest rental markets in the country, and even small changes in supply can have noticeable effects on availability. As Kriek notes, higher capital values inevitably filter into rents: "People who buy for investment require a higher nominal return, which means the rents go up."

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A complex policy trade-off

The proposed by-law targeting commercial-scale short-term rental operations reflects a genuine attempt to strike a balance. But, it is unlikely to resolve Cape Town's housing pressures on its own.

Cities around the world have grappled with similar challenges. From Barcelona and Amsterdam to New York, governments have introduced regulations ranging from licensing systems to strict limits on short-term rentals, with mixed results. Urban policy researcher Dr Louise Daniels cautions against expecting too much. "Short-term rentals can influence supply in certain neighbourhoods," she explains. "But they are rarely the primary driver of housing shortages in large global cities. The deeper issue is almost always structural - limited land, slow development approvals, infrastructure capacity and strong population growth."

For Cape Town, the challenge lies in balancing competing priorities.

Tourism remains one of the city’s most important economic sectors, supporting thousands of jobs and contributing significantly to the local economy. At the same time, residents facing rising housing costs are increasingly concerned about the availability of long-term homes.

Taxing short-term rentals may be the right call, but whether they meaningfully improve housing availability ultimately depends on deeper structural forces shaping the city’s housing system. This cannot be fixed by platform regulation alone.