The "creative solution" is a win-win for the owner who continues to enjoy the property at peak times, such as summer and during the folk festival, while also having the house permanently leased.

The tenant, if they agree to vacate for a few weeks a year, has long-term housing at a time when it's almost impossible to secure a rental property.

A Moyne Shire Council spokesman said 40 per cent of Port Fairy's housing was used as holiday accommodation and it was a similar figure at nearby Peterborough.

While both popular summer destinations, some houses can sit idle for more than 10 months a year.

At the end of 2021, Port Fairy's median house price was $800,000, making owning a home in the seaside town out of reach for many buyers.

The model is one solution to help address the region's ongoing rental crisis as the number of people needing homes well exceeds the number of available rental properties.

The move could also boost the town's economy with more residents there in the quieter months.

Port Fairy's Simone Favelle returned to her hometown with daughter Yani, 14, and is one resident benefitting from a similar lease agreement, which has been in place for the past two years.

Previously living in Tasmania, Ms Favelle moved back in December 2019 to support her mum after the death of her dad. She said relocating wasn't a choice, but more of a necessity at the time.

For 49 weeks of the year, Ms Favelle and Yani live in the furnished two-bedroom cottage which is two blocks from the ocean. But for three weeks in summer her landlord Margaret Hickey travels from Beechworth with her family to enjoy everything Port Fairy has to offer.

Ms Favelle said it was a "creative solution" and said there was a huge need for housing in Port Fairy.

She recently shared her experience on the Port Fairy Community Facebook page, encouraging other homeowners to do the same and was surprised at the interest and comments it received.

"There's so many people needing housing and here's a little model we've got going on," Ms Favelle said. "I can't see why it's not something people would do.

"It's a bit of a no-brainer. I wanted to inspire some people to think about it that may not have, and it was a timely discussion at the start of the year.

"A homeowner from East Beach contacted me and she said 'I'm getting tired of holiday rentals and all the work associated with it' and asked me how much rent she should charge so it inspired that person."

Ms Favelle said vacating her home wasn't an issue as she could stay with her mum in Port Fairy or book a trip back to Tasmania during that period. "I could make it work for me."

Her landlord also gives her a week rent-free to make up for any inconvenience caused as part of the arrangement and pays for their utility usage during their stay.

"I'm out of the house for three weeks and I don't have to pay rent during that time so that can go towards my airfare or whatever," Ms Favelle said. "I still end up with inconsequential costs, but across the whole year it's a good arrangement for me."

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She said having 40 per cent of the town's home as holiday rentals, some of those vacant for much of the year "was a ridiculous situation when there's such a need".

She said the model could work for other home owners and potential tenants in a similar situation but there needed to be mutual respect, understanding and a capacity to work together. A formal lease agreement, stating all the terms and conditions was also needed.

Homeowner and landlord Margaret Hickey said she "couldn't ask for a better tenant or a more happy arrangement" than the one with Ms Favelle.

Ms Hickey's parents and extended family live in Port Fairy and the family looks forward to returning to stay at the home and visit them over summer.

Ms Hickey said while the arrangement worked for them, it wouldn't be for everyone.

"It's not without its difficulties," Ms Hickey said. "It can be awkward asking a renter to move out and then we move in but Simone's been a really great tenant."

She said while Ms Favelle was grateful to rent the home, they were also fortunate to have her there looking after it and said "it works both ways".

"I do think it's a really good model and I wish more people would do it," Ms Hickey said. "Simone is a Port Fairy local, she's a mother, she's an active contributor to the community so it makes us feel better knowing that.

"If you really care about a town like Port Fairy and love the town and you live outside, then this is a way to contribute to the health and the vitality of it.

"It doesn't have to be forever. It could be two or three years and then you take it back as a holiday home but at least in that time you've helped."

She said while they could probably make more money leasing it as a holiday rental, she knew the cottage was being cared for and occupied in quieter periods of the year.

"Sometimes we would love to have gone down longer," Ms Hickey said. "We love Port Fairy and my family's down there, that's a restrictive thing. But in the short term, or if it suits you for two or three years and suits both families I think it's ideal, rather than having a little home that's left empty while people can't find homes to rent."

Next door, homeowner and former Port Fairy resident Solée Robertson, is in the process of negotiating a similar arrangement for her three-bedroom home that allows her to use the property three weeks a year.

Ms Robertson said she was overwhelmed with the response from interested tenants and wants more homeowners to consider if the model would work for them.

"I feel very passionately about holiday homes being rented out to help people in need during this housing crisis," Ms Robertson said.

Lockett and Co Real Estate business partner and agent Paula Dwyer said there was "no magic wand to wave and no specific answer" to improving rental availability and affordability.

She said people were currently buying homes to live in, rather than as an investment, as a result of the pandemic which wasn't helping the situation.

"With challenges around the new (rental) laws, people prefer to do holiday let and they can use it during quieter times or block out periods for themselves," Ms Dwyer said.

She said despite the agency ceasing rentals eight years ago, she received daily enquiries, with a number of those from people moving or looking to relocate for work.

"We've got a big sign on the door saying 'we do not do holiday lets or permanents', but they still come in and ask," she said.

"I had a lady ring up Monday. I felt so sorry for her. Her husband's a professional. She said 'we need a house just for six months but we can't get anywhere. We'd even go to the caravan park in a cabin'. That's how desperate people are.

"In Port Fairy there are some new builds, but there's not anywhere you can do house and land packages, not like Koroit where there is a bit more. A lot of times there's just nowhere to build more housing."

She supports the idea and knows of Port Fairy residents with similar private rental agreements in place, which were often initiated through word of mouth, after hearing of someone's friends or family needing a home.

She knows one resident who vacates their rental during the folk festival and other periods during the year, when the homeowner wants to use it.

"They were happy to do it to secure the rental," Ms Dwyer said.

Moyne Shire mayor Ian Smith said housing was a huge problem and welcomed any strategies to help ease the shortage.

"As a council we have discussed it - to think of ways around it," Cr Smith said. "What can we do to free up houses sitting there for 10 months of the year? We're very aware of it and have discussed it within council and what we could do to get these houses for essential workers.

"It's a very difficult one because you're dealing with people's private homes."

He said it would be terrific if people adopted similar arrangements. "It'd be great if we could help get these houses utilised to assist in the housing shortage," Cr Smith said.

"We've got such a housing shortage and these properties are sitting there not being used."

He said if the homes were rented throughout the year it could also help local businesses.

"It's a massive boost to the economy and it would be over the slower times of the year," Cr Smith said. "From May Races through to November it would be a massive boost to the businesses in Port Fairy."