Cape Town’s proposed Airbnb rates “tax.”

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 The City of Cape Town’s recent announcement regarding a "tax crackdown" on short-term rentals has sent ripples through the property market. However, a closer look at the proposed Short-Term Letting By-law reveals that this is less about a brand-new tax and more about the rigorous enforcement of existing municipal structures to address the city’s evolving housing and economic landscape.

As Cape Town continues to be a global tourism magnet, the explosion of platforms like Airbnb—now boasting over 26,000 listings in the metro—has created a complex challenge for city planners.

Shifting from Residential to Commercial

The core of the City’s argument rests on the intended use of a property. Currently, many dedicated short-term rentals operate within residential zones while paying residential property rates. The City contends that when a property is used exclusively or primarily for short-term guests, it ceases to be a "home" and becomes a "decentralized hotel."

Under the proposed framework, the City will utilize data-sharing agreements with platforms like Airbnb and Booking.com to identify properties that are available for rent for the majority of the year (often cited as more than 60% of the time). Once identified as a commercial enterprise, these properties will be reclassified, potentially leading to a rates increase of up to 135% to align them with the tariffs paid by traditional hotels and guest houses.

Protecting the "Casual Host"

Mayor Geordin Hill-Lewis has been quick to clarify that the by-law is not a blanket attack on the sharing economy. The City distinguishes between two types of hosts:

  1. The Residential Host: Homeowners who rent out a spare room or vacate their primary residence for a few weeks a year during the festive season. These individuals are not the target of the crackdown and will maintain their residential rate status.

  2. The Commercial Operator: Investors who own one or multiple properties solely for the purpose of short-term letting. These are the entities the City seeks to regulate and tax at commercial scales.

Leveling the Hospitality Playing Field

A major driver behind this move is pressure from the formal hospitality sector. Hotels and registered B&Bs have long complained about "unfair competition." Traditional establishments face high commercial rates, stringent health and safety regulations, and labor laws, while commercial Airbnbs have often bypassed these costs. By enforcing commercial rates on full-time short-term rentals, the City aims to create a fairer competitive environment.

Addressing the Housing Crisis

Beyond revenue, the City is looking at the social impact of the short-term rental boom. In popular areas like the Atlantic Seaboard and the City Bowl, the high profitability of Airbnbs has significantly reduced the supply of long-term rentals for local residents.

By increasing the carrying costs for commercial short-term rentals, the City hopes to "nudge" some property owners back into the long-term rental market. An increase in long-term supply could help stabilize soaring rents for Capetonians who work in the city but are currently priced out of living there.

What Happens Next?

The proposed by-law is moving toward a public participation phase, where property owners, industry bodies, and residents will have the opportunity to voice their concerns.

For property owners, the message is clear: the era of "flying under the radar" is ending. Investors are encouraged to review their property usage and prepare for potential reclassifications. The City has signaled that it prefers proactive compliance over punitive enforcement, but with data-sharing technology at its disposal, identifying high-occupancy rentals is becoming a simple matter of digital record-keeping.

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