A 60-day annual cap has been approved on short-term lets in the coastal tourist hub amid soaring rents, which local leaders say have been forcing out long-term residents.
The NSW government on Tuesday endorsed the two-month cap on some non-hosted, short-term accommodation ahead of potential statewide reforms of the sector.
Byron Shire faces unique cost-of-living pressures amplified by being a year-round tourist destination, the NSW Independent Planning Commission found earlier this year.
The cost of housing in the region has risen significantly in recent years, with growth outpacing Sydney and other parts of NSW.
About 1300, or one in 12 homes, in Byron Shire are being used as short-term rentals.
Byron Shire Council proposed halving its 180-day cap on short-term rentals last year but the commission's advice went further and said a 90-day limit would not incentivise landlords to return properties to the market.
Some precincts near beaches and key services will be able to continue to operate without the 60-day cap.
Premier Chris Minns said other local councils could apply for tighter limits on short-term rentals, but they need to be prepared to come to the table with more housing approvals in order to increase supply.
"It can't just be a situation where we put it all on Airbnb and short-term rentals," he said.
"It's not good enough to just hang a sign up saying 'Byron's full'."
Non-hosted short-term rentals are restricted to a maximum of 180 days a year in Greater Sydney and self-nominated local government areas including Ballina, Byron, parts of Clarence Valley and parts of Muswellbrook.
Planning Minister Paul Scully said the state government would look at wider policies underpinning short-term rentals later in the year, but Byron Shire had some acute housing problems that needed to be dealt with.
Byron Shire Mayor Michael Lyon said the decision was about striking a balance between accommodating visitors and ensuring housing was affordable for permanent residents.
"Slight increases in the cost for the visitor are really not as important as ensuring that locals have actually got somewhere to live and the rest of the economy that needs the workers, that relies on having workers that can live close by, benefits," he said.
The state government stopped short of adopting all of the commission's recommendations, saying they would have broader implications for short-term rentals across the state.
They included a levy on short-term stays in Byron Shire and making the 60-day cap apply council-wide without exemptions for peak tourist zones.
The planning department will instead take these recommendations into account as part of its broader review.
A 12-month transition will apply before the new rules take effect in September 2024.
The Victorian government announced last week a 7.5 per cent levy on platforms such as Airbnb and Stayz from 2025 in Australia's first blanket tax on short-stay accommodation.
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