Sydney property owners are being threatened with fines of more than $1 million for renting out rooms in their homes through short-term accommodation sites such as Airbnb.

Others, like Newtown resident Lynn Stanton, have been instructed to apply to become bed and breakfasts – a process which may include expensive upgrades like fitting commercial kitchens – as councils grapple with how to regulate a growing online economy that connects home owners with holidaymakers.

Sydney's planning controls have yet to catch up with new accomodation services offered by companies such as Airbnb. Credit:Bloomberg

Ms Stanton, who is working with the City of Sydney to get her application approved, said the council even requested to see a copy of her breakfast menu.

"They said, 'oh there's not much cooking involved there," said Ms Stanton, who typically laid out fruit, muesli and bread for guests to help themselves.