Instead of making their position on short-term letting clear, the government stepped back from a parliamentary report and its recommendations that would have allowed a massive increase in short-term holiday letting in apartment blocks.

The government was due to provide a detailed response to the report from an 18-month parliamentary inquiry into holiday letting, including proposed regulations for Airbnb-style hosts.

Instead they posted a broad-stroke response that gave unqualified support to only three of its 12 recommendations and announced that "an options paper with approaches to implement a whole of government framework will be released for consultation."

They gave qualified support to the other nine recommendations handed down by the inquiry.

Industry insiders say the holiday letting landscape has changed so quickly that the original report was out of date almost before it had started.

Now in what many apartment residents will see as at least a partial victory, the government has effectively questioned the main proposal to make holiday lets "complying developments", which would have removed the legal basis on which apartment blocks currently pass bylaws excluding short-stay or holiday rentals.

The inquiry into holiday letting legislation - chaired by Nationals MP Mark Coure - was launched almost two years ago, prompted by Airbnb hosts being threatened with $1 million-plus local council fines for running unauthorised businesses in their homes.

However, since then Airbnb has grown exponentially in Australia and recently announced that Sydney is among its top five cities in the world, in terms of usage.

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As a result, Planning Minister Anthony Roberts and Innovation and Better Regulation Minister Matt Kean have called for more consultation with key stakeholders to get a more up-to-date picture.

"The inquiry recommendations make sense, but the regulation of short-term letting needs broader engagement with the industry and the community to establish a model that enables it to continue to flourish and innovate whilst ensuring the amenity and safety of users and the wider community are protected," Mr Roberts said.

"It's sensible to take time on a complex issue like this, which is why we are releasing an options paper next month."

"We don't want a holiday accommodation market that's so over-regulated it puts people off coming here but the rights of residents who live near these properties must be considered too," says Mr Kean.

"While short-term holiday letting, if properly managed and respected by all parties, can be a boost to the local economy, the need to protect people's rights to the quiet enjoyment of their own homes is equally important."

Both critics and supporters of the Coure Report recommendations welcomed the government's decision to consult more broadly with stakeholders.

Airbnb, which has over 40,000 listings across NSW with hosts earning an average of $4400 each year, welcomed the NSW government's decision to look more closely at the issue.

"We appreciate that these things take time and that it's important to get the balance right," Airbnb Australia country manager Sam McDonagh said.

"We're confident that Premier [Gladys] Berejiklian and the NSW government will join the state governments in Tasmania and South Australia to embrace home sharing, and introduce fair regulations that allow more people in NSW to share their extra space."

Independent Sydney MP Alex Greenwich, 70 per cent of whose constituents live in apartments, sees the call for further discussion as an indication that the government is listening to the concerns of strata communities.

"It's clear from the many constituents and various stakeholders who have engaged with both the government and myself, that further consultation is needed to ensure strata communities are empowered to make decisions for their buildings, while also acknowledging the role accommodation providers like Airbnb can play in a global city," he told Domain.

"In parliament the Minister [Matt Kean] has demonstrated his respect for strata communities and stressed the importance of protecting people's rights to the quiet enjoyment of their own homes."

Leading strata lawyer Stephen Goddard, spokesman for the apartment owners lobby group Owners Corporation Network and its campaign Our Strata Community Our Choice welcomed the more considered approach.

"We look forward to a more detailed consultation on how to manage short-term letting in apartment buildings," he told Domain. "Apartment owners deserve the right to decide if short-term rentals are permitted within our strata communities and if so on what basis it is permitted."

The hotel industry, facing increased competition from online letting agencies like Airbnb, was also glad to be given the chance to restate its concerns.

"TAA looks forward to further consultation with government to ensure a resolution is reached that ensures the sustainability of the commercial accommodation sector which currently injects $2.3 billion directly into the economy," says Carol Giuseppi, CEO of Tourism Accommodation Australia.

However there is concern in the holiday rental industry that the government might move too far in the other direction, especially with a 'one-size-fits-all' approach.

"Short term rental accommodation is a key driver of tourism in rural and regional NSW," said Jordan Condo, Director of Corporate Affairs for online holiday letting agency Stayz. "Stayz remains steadfastly opposed to any measures that restrict short-term rental options outside of metropolitan Sydney."

Stayz and the Tourist Association of Australia shocked observers recently when they issued a joint statement calling for curbs on holiday letting of residential homes in city areas.

The statement called on the government to introduce "restrictions on short-term rentals in residential buildings in metropolitan areas in order to mitigate the effects that such rentals have on housing affordability and accessibility."