Some apartment owners in New South Wales could be banned from renting out their properties on Airbnb, after the State Government reached a compromise position on laws governing short-term holiday rentals.

Strata owners corporations will be given the power to pass by-laws that prevent short-term letting in their block if the host does not live in the unit they are letting out.

It targets investors who buy up apartments to put on Airbnb, but allows owner-occupiers to continue renting spare rooms or entire units while they are not at home.

The deal is a compromise reached after a backbench revolt in the Coalition joint partyroom.

Better Regulations Minister Matt Kean has previously tried to push through a package of changes that did not allow strata owners corporations to prevent the use of Airbnb in their buildings.

He conceded it had been a complex issue to resolve.

"We've been grappling with how to regulate this industry for a little over two years," he said.

"There is genuinely a diversity of opinion across both the partyroom and the community … but I'm confident this package has got the balance right."

Limit of 180 days per year

Under the changes announced on Tuesday, hosts based in the greater Sydney area will also only be allowed to rent out their homes for up to 180 nights a year.

There will be no automatic cap in regional areas, but councils can choose to impose their own limits.

Planning Minister Anthony Roberts said the caps aimed to ensure that Airbnb and other platforms did not have any negative impact on rental affordability.

"Sydney has a huge rental market and we don't want to see any unintended consequences," Mr Roberts said.

In the past year, over 1.6 million guests have visited Airbnb properties in New South Wales. ( Airbnb )

A mandatory code of conduct will be developed for online accommodation platforms to address issues like noise levels and disruptive guests.

Guests and hosts who commit two serious breaches of the code of conduct within two years will be banned from all short-term holiday platforms for five years.

"We are about to introduce the toughest laws in the world when it comes to bad behaviour," Mr Kean said.

NSW Fair Trading will appoint independent adjudicators to assess complaints against the code and will maintain an online register of strikes.

Businesses that breach the code will face fines of up to $1.1 million, while individuals could face fines of more than $200,000.

Stayz concerned over individuals' property rights

Owners Corporation Network of Australia spokesman, Stephen Goddard, said he hoped party houses were a thing of the past.

"The party houses are hopefully over. The fact that there's a code of conduct will put an end to people's amenity being destroyed by people on holiday without any concern about where they are," he said.

The proposed policy was well received by Airbnb representatives including Airbnb's Country Manager for Australia and New Zealand, Sam McDonagh.

"[Today] the New South Wales Government has effectively green lit home sharing in New South Wales," he said on Tuesday.

"This is a watershed moment for the Airbnb community, who here in New South Wales, have welcomed more than 1.6 million guests in the last 12 months."

But rival short-term rentals site Stayz, which is now owned by HomeAway, said the NSW Government's proposal was a "retrograde step".



"We fear these proposals will lead to a patchwork of regulation across the state, drive up the cost of accommodation and curtail the economic potential of the short-term rental sector," HomeAway director of corporate and government affairs Eacham Curry said.

"HomeAway does not support any proposal that infringes on the essential property rights of individuals."

Byron Bay faces housing affordability crisis

Byron Bay locals have been affected by increased rent as the short-term holiday rental market booms. ( ABC News: Rebecca Armitage )

The Byron Bay community has been especially affected by the rise in short-term holiday rentals, with some locals struggling to find affordable long-term housing during peak holiday season.

"People are leaving town," Byron Shire councillor Michael Lyon said.

"They can't get anything but short-term leases from April to October.

"Once holiday season kicks in, everyone gets kicked out."

Mr Lyon said that local workers have been forced to move out of Byron Bay to find more affordable accommodation and then face long commutes to work.

"It's ripping our community apart," he said.

In Byron shire, short-term holiday rentals have driven up the price of housing as visitors outnumber locals by a ratio of 70 to one.