Cape Town’s new Airbnb tax crackdown - what it actually means

Cape Town’s property market has been one of South Africa’s strongest performers for years, and has subsequently attracted semigration buyers, foreign investors, and lifestyle purchasers. However, it has also seen rapid growth in the short-term rental sector built around platforms like Airbnb.

Now the City of Cape Town is changing how it treats those properties.

A proposed municipal policy and short-term letting by-law will introduce higher property rates for homes used primarily for Airbnb-style rentals, effectively taxing them more like hotels than private residences. And while it sounds like a niche issue affecting a handful of hsts, the reality is far bigger.

The decision could reshape property investment returns, influence rental supply, and even affect home prices in certain neighbourhoods.

A city with a massive short-term rental market 

Cape Town is not a typical South African housing market; it is a global tourism city.

The scale of short-term letting in the city illustrates this clearly. There are roughly 26 500 Airbnb listings in Cape Town, making it one of the largest concentrations of short-stay accommodation on the African continent.

According to Airbnb’s 2024 Impact Report for Cape Town, dedicated short-term rentals - defined as properties rented out for stays of 90 days or more - make up about 0.9% of all formal housing units in the city. In 2023, hosts on the platform welcomed over 700,000 guest arrivals, and activity on Airbnb contributed an estimated R14.4 billion to Cape Town’s gross domestic product, including supporting around 42,000 jobs and generating about R7 billion in labour income.

In areas like Sea Point, Green Point, Gardens, Cape Town CBD, and the Atlantic Seaboard, entire apartment blocks can effectively operate as informal hotels during peak season. This matters because each property used for holiday accommodation is a property not available for long-term tenants, and the city believes that this is now affecting housing availability and affordability.

Municipal officials argue short-term rentals function as “decentralised hotels” but currently pay lower residential property taxes.

The new policy is designed to change that.

What the city is proposing

The City of Cape Town plans to introduce two linked changes:

1. a short-term letting by-law
2. higher municipal property rates for qualifying properties

Under the proposal, homes used primarily for short-stay accommodation may be reclassified as commercial-type accommodation and billed at business tariffs instead of residential rates.

The impact could be significant. Some reports indicate municipal rates could increase by as much as 135% for affected properties.

In simple terms, if a property operates like a small hotel, the city intends to tax it like one.

The by-law will also allow the municipality to identify qualifying properties and enforce compliance, including potentially requiring platforms to share host listing information.

This means many hosts who have quietly operated for years may now fall within a monitored system.

Why Cape Town is acting now

To understand the decision, you need to look at Cape Town’s housing pressures.

The city has experienced one of the strongest property growth cycles in South Africa over the past decade. Demand from semigration, remote workers, and foreign buyers has pushed prices upward, especially along the coast.

At the same time, landlords increasingly shifted from long-term rentals to short-term tourism income, which is often more profitable in peak season. The city believes this has reduced available rental stock and worsened affordability for residents.

Instead of banning short-term rentals outright, as some other international cities have done, Cape Town is choosing a different approach: using property rates to change behaviour.

By making full-time Airbnb operations more expensive, the municipality hopes some properties will return to the long-term rental market.

The hidden impact on property prices

For several years, investors purchased apartments in certain suburbs primarily because the numbers worked on short-term letting income. In other words, the investment calculation looked like this:

Bond repayment + residential rates + Airbnb income = profitable property.

But if municipal rates rise substantially, the equation changes. Now the calculation becomes:

Bond repayment + commercial-level rates + operating costs = tighter yields.

That affects investor demand, purchase prices, and future growth expectations in short-term rental hotspots.

Areas most likely to feel the impact include inner-city and Atlantic Seaboard suburbs where Airbnb activity is concentrated. In property markets, small yield changes often influence purchase decisions, and purchase decisions ultimately influence prices.

This change introduces a new type of due diligence for property purchases in Cape Town. Before buying in popular coastal or CBD areas, purchasers should now investigate:

• Body corporate conduct rules (many schemes already restrict Airbnb)
• Whether the property’s pricing assumes short-term rental income
• Municipal classification risks
• Running costs beyond bond repayments

In other words, a property is no longer just about location and price; it is also about regulatory suitability.

When a home becomes a business

One of the important aspects of the policy is the legal distinction it introduces. The city is effectively separating occasional holiday letting from ongoing commercial accommodation.

If a homeowner rents out a room while on holiday, that will likely remain residential use. However, if a property is consistently available for short stays and functions as ongoing tourist accommodation, it may be classified as a business activity.

This classification triggers:

• higher rates
• planning compliance
• monitoring

For the first time in South Africa, a homeowner could legally be treated as operating a hospitality business without owning a guesthouse.

Will this affect the rental market?

Potentially, yes.

If higher rates reduce profitability for some operators, certain properties could move back into the long-term rental pool. That would increase supply, and increased supply usually stabilises rental growth.

This is precisely what the city hopes to achieve, not eliminating short-term rentals, but balancing tourism accommodation with residential housing needs.

It is important to remember that Cape Town has not banned Airbnb; they are hoping to redefine what Airbnb is. 

Rather than viewing it as casual home sharing, the municipality now treats full-time short-term letting as a commercial activity within residential neighbourhoods.

The practical implication is simple - Airbnb in Cape Town is moving from a side-income opportunity to a regulated business model. And for property buyers, investors, and sellers, that changes how property value and property risk should be assessed going forward.