One Sydney council warned a homeowner renting out part of her home to short term renters through Airbnb that she could be given a million dollar fine for operating an "unauthorised" bed and breakfast. That council later decided renting out a room in her house was within the law, but other councils have deemed short-term rentals breach residential zoning laws.

Some councils have demanded owners make expensive changes to their property before they rent out a room. Other councils welcome the influx of tourist money, and only step in if renters get too noisy.

Property law expert Rita Fisher of Stacks Law Firm says the law has failed to keep up with the rapid growth of short-term rental accommodation through websites such as Airbnb.

"There are now more than 15,000 Airbnb listings in the Sydney area – double what it was 12 months ago. They are also growing fast in regional centres, particularly in tourist areas such as the Blue Mountains where I have my office, and along the east coast.

"There are many uncertainties in the law beyond just whether renting out a room in your home complies with council zoning laws," she said.

"What about insurance? What about safety standards for both the owner and the renter? The current laws are confusing, undefined, inconsistent and in many cases unfair."

A NSW parliament committee is currently holding public hearings into the laws governing short-term holiday letting including the websites Airbnb, Windu, Wotif and Stayz.

Tourist industry groups say they bring much-needed tourists to regional areas. Hotel, hostel and bed and breakfast operators say private home letters have an unfair advantage bypassing costs and fire regulations, and pose potential risks for safety of guests and owners.

Another factor is that many property owners are now more keen on having short term rentals, so that people looking for a long term place to live are frequently missing out to tourists. The taxman is also worried about missing out on income made from renting a room.

"There is a real need to resolve these issues so that everyone is satisfied," said Ms Fisher. "The law has to catch up with the reality of what is going on. Sites such as Airbnb have opened up tourism to new markets, and many tourists like the personal contact of staying in someone's home.

"But there are potential problems with insurance and safety. Home owners would be wise to get expert legal advice before they offer rooms to let, and need to be aware of changes to the law that might emerge from this current parliamentary inquiry."

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