Accommodation providers in Western Australia's south-west have warned that the state's tourism industry could go bust unless short-stay accommodation sites like Airbnb are regulated.

Key points: A parliamentary inquiry into short-stay accommodation is underway in WA

A parliamentary inquiry into short-stay accommodation is underway in WA It comes amid rising tension between business owners and unlicensed operators

It comes amid rising tension between business owners and unlicensed operators Tourism body says sites like Airbnb are opening up the region to international markets

Margaret River, known for its vineyards and surf, is one of the state's premier tourism destinations.

But the region is now at the centre of rising tensions between owners of licensed short-stay businesses, such as hotels and guesthouses, and unlicensed operators who advertise online.

"To operate a business in a fair environment everyone needs to be on a level playing field," resort manager Rick Jones said.

"So if we're paying commercial rates for either sewerage, insurance, to the shire, for water, electricity, then it's not an unreasonable request for everybody to do that."

Parliamentary inquiry into short-stay accommodation

This week Mr Jones, along with dozens of other traditional accommodation providers, told a parliamentary inquiry that the region's growth is at risk of instability if the short-stay sector is not regulated.

Nationals MP Terry Redman called for the inquiry late last year in response to growing concerns from local governments and the state's tourism sector.

The bipartisan committee has been in Margaret River for the past three days looking into issues including building standards, stay length, licensing and taxation.

Rick Jones said the region's growth is at risk of instability if the short-stay sector is not regulated. ( ABC News: Sebastian Neuweiler )

There are currently 1,020 active short-stay rentals advertised online in the Augusta-Margaret River region.

About 90 per cent of those Airbnb listings are entire homes, which are often advertised at cheaper rates than registered resorts and guesthouses.

"Of course you can give a cheaper rate if you don't have to pay commercial rates," Mr Jones said.

"But if you're running a full house and you're listing it as short-term accommodation, then that's a small business and that shouldn't be any different than any other small business."

'People wouldn't come here'

Jenny Gleeson has been subletting her home online for the past eight months.

While business owners told the inquiry they are more concerned with 'unhosted' lets, where entire homes are rented out without management present, they are adamant all operators should comply with the same rates and safety standards.

Ms Gleeson said that is not viable and not in the best interest of the region.

Jenny Gleeson sublets her home online but says adhering to commercial rates and safety standards isn't viable for people like her. ( ABC News: Jacqueline Lynch )

"If it's regulated and I'm regulated to the standard as a hotel, I won't be able to afford to do this," she said.

"People wouldn't come here if there were exorbitant kinds of compliance requirements and astronomical rates."

New market opportunities

The region's tourism body said sites like Airbnb are opening the region to new international markets.

"Singapore is a very important market for our region and even though the platform is illegal in Singapore, we know that Singaporeans are the most likely to use it," said Sharna Kearney, the joint Chief Executive of the Margaret River Busselton Tourism Association.

"If we don't, as a region, have product on those websites, then we're going to quickly become uncompetitive as a tourism destination because that's how people book their travel these days."

She said while rules should be uniform for everyone, the regulation of online booking platforms should not stifle their reach and simplicity.

The region's tourism body said sites like Airbnb are opening the region to new and vital international markets. ( ABC News: Sebastian Neuweiler )

Mr Jones, who used to rent out his private home through short-stay websites, said he understood both sides of the debate.

He said he feared that if investment in local infrastructure did not keep up with the industry's digital disruption, regional destinations like WA's south-west would get stuck in a boom-bust cycle, with businesses continually opening and closing, pushing employees out of their own rentals in favour of short-stay profit.

"You can't just stick 10,000 people in, and there's no overtaking lane between Busselton and Margaret River, people are going crazy on the road, and then parking in the bush and wrecking the natural environment," he said.

"The area has to grow together — it's not just about accommodation, we can't just look at that one picture."

The parliamentary inquiry is set to hand down its recommendations later this year.