Some apartment owners in New South Wales could be banned from renting 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.

The new scheme was unveiled by Better Regulation Minister Matt Kean.

It targets investors who buy 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.

Mr Kean had 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 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 a negative effect on rental affordability.

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

A mandatory code of conduct will be developed for online accommodation platforms to address issues such as 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.

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. 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,” he said.

Head of Global Policy and Public Affairs for Airbnb, Chris Lehane, said the changes could set a global precedent.

-ABC