As demand returns, can short-term rentals co-exist with housing affordability?

Click to play video: 'Airbnb: Are short-term rentals making housing less affordable in Canada?'
Airbnb: Are short-term rentals making housing less affordable in Canada?
WATCH: Platforms like Airbnb are receiving renewed scrutiny amid a return to summer travel and an uptick in demand for short-term rentals, because of their role in making housing less affordable for some Canadians. Anne Gaviola has more on the impact of short-term rentals and the push for regulation – Jun 11, 2023

The return to summer travel and an uptick in demand for short-term rentals are renewing scrutiny on the role platforms such as Airbnb play in making housing less affordable for some Canadians.

Experts who spoke to Global News say there’s a clear correlation between the prominence of short-term rentals in a city and the affordability of rents and home prices, while a spokesperson for Airbnb says there’s no proof that the platform is making housing more expensive for local residents.

Pushes to regulate the short-term rental market like new legislation passed this week in Quebec, however, are showing promise to experts who monitor the impact of Airbnb and others on improving housing affordability in Canada.

'Biggest' summer yet for short-term rentals

Quebec’s new regulations and the conversation about housing affordability in Canada come as Airbnb itself is projecting a “much larger return to summer travel.”

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Nathan Rotman, Airbnb’s regional lead in Canada and the northeastern United States, says much of the travel demand in Canada observed by the platform comes from budget-conscious Canadians who are travelling domestically but nonetheless want to get out of the house this summer after years of pandemic disruptions.

“We’re definitely seeing people return to urban centres in a way that they hadn’t at the height of the pandemic, when they were looking to reconnect with family and friends and book something much more rural and remote,” he tells Global News.

Bram Gallagher is an economist with AirDNA, a third-party site that scrapes data from Airbnb and Expedia-owned competitor VRBO to track the short-term rental market for investors and the platform’s hosts.

Gallagher confirms Rotman’s read on the short-term rental market: “demand is up,” he tells Global News.

Click to play video: 'Tourism bounceback anticipated'
Tourism bounceback anticipated

April, for example, saw 1.4 million short-term rental stays in Canada, up from 1.2 million a month earlier, according to AirDNA’s analysis. Gallagher says he expects those higher volumes will persist through 2023.

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“We’re expecting the biggest, best summer that we’ve ever seen in Canada,” he says.

That’s despite a dearth of listings in major urban centres, according to Gallagher, who sees demand picking up in Canada’s secondary markets and rural tourist destinations.

When the pandemic struck, the number of listings in metropolitan markets such as Toronto and Vancouver plummeted as urban travel ground to a halt and many vacationers looked to rural and remote cottage destinations, according to AirDNA.

Gallagher says the supply of short-term rentals in these markets has yet to recover even as demand returns, which he attributes to new regulations in municipalities and provinces designed to crack down on the market.

How do short-term rentals impact housing affordability?

Many of those regulations that came to cities such as Vancouver in 2018 and Toronto in 2021 were aimed not only at stemming the rise of problematic “party houses” posted on the platform, but also addressing concerns from housing affordability advocates.

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The past decade saw a flood of properties taken off the ownership and long-term rental markets in Canada and put up for short-term use, says David Wachsmuth, the Canada Research Chair in Urban Governance at McGill University.

When landlords and commercial property owners realized they could be getting much better margins on their units with the emergence of Airbnb in the 2010s, “thousands” of homes were converted into short-term rentals, Wachsmuth tells Global News.

“When you take a bunch of supply off of a market and don’t really change anything about the demand, the result is that prices are going to go up. And that’s indeed what happened,” he says.

While rents have indeed soared over recent years — now topping $2,000 for the average two-bedroom home in Canada, according to the latest data from May — Wachsmuth acknowledges that rental inflation cannot be pinned entirely on the so-called “Airbnb effect.”

Click to play video: 'Rent‘flation’'

In an analysis of the British Columbia rental market between 2017 and 2019, however, he pinned 20 per cent of the increase in rents over that period to the growth in short-term rentals. When the pandemic struck the following year, pushing rents and the number of short-term listings down in the province, he says he observed a similar correlation between the two.

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Wachsmuth says the presence of Airbnb not only pushes rents higher, but inflates prices in the ownership market as well. When a home buyer puts in an offer on a home with the intention of renting out a basement unit to offset the mortgage costs, that pushes prices higher for everyone in the market — even those who don’t intend to rent out a part of their home, he argues.

“It’s not the only contributor, but it is actually, I would say, a surprisingly large contributor to housing affordability problems,” Wachsmuth tells Global News.

Airbnb’s Rotman pushes back on Wachsmuth’s claims that the more short-term rentals there are in a market, the worse off renters and prospective home buyers will be.

He points to the rapid housing inflation in Toronto over recent years, when the number of listings declined amid the pandemic and new regulations being instituted, as proof that Airbnb isn’t the cause of what he acknowledges has become “a rather significant affordability crisis.”

“There is simply no proof that there’s a material impact of short-term rentals on the housing market,” he says.

For Gallagher, the answer to whether Airbnb and other platforms negatively impact housing affordability is not a straightforward answer.

He wrote a report in January reviewing the existing research on correlations between short-term rentals and housing affordability.

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The prevailing thinking today, according to Gallagher’s review, was that there’s little discernible impact on housing affordability from short-term rentals on a macro, country-wide scale.

However, research has shown an impact on a very localized level in areas with high tourism traffic, Gallagher says; take the French Quarter in New Orleans, for example, rather than looking at the whole of Louisiana.

“There are effects, but they’re very highly localized in tourist hot spots,” he says. “And when we’re looking at large markets, it’s not a huge effect. Not compared to the magnitude of the housing price appreciation that we’ve seen.”

What role has regulation played?

Regulations, largely at the municipal level, have arisen in various forms across Canada in recent years.

The crux of the most successful regulations to date, Wachsmuth says, has been to make hosts register their property to obtain a licence and to restrict short-term rentals to primary residences only — allowing an owner to rent out a room in their own home rather than an entire property.

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He says that these kinds of moves, which Toronto has implemented and Vancouver was a “trailblazer” in North America for adopting, help to maintain the supply of homes in the cities’ rental and ownership markets.

“These kinds of rules are a step in the right direction. And they’re absolutely helping keep housing affordability and making sure there’s more housing available,” Wachsmuth says.

“It’s just that they’re not perfect.”

Click to play video: 'Bogus registration numbers found on Quebec Airbnb listings'
Bogus registration numbers found on Quebec Airbnb listings

One of the notable exceptions to Toronto’s regulations is that longer-term rentals of 28 days or more are still permitted outside the principal residence restriction.

Wachsmuth alleges that some commercial owners are continuing to operate shorter-term rentals in these properties under the radar.

That’s the claim as well from Thorben Wieditz, the director of Fairbnb Canada, a non-profit coalition of community groups, hotel and B&B associations and concerned citizens that advocates for regulations on the national short-term rental market.”

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He points to inconsistencies such as longer-term properties getting multiple reviews per month as evidence not all landlords in Toronto are following the letter of the law on short-term rentals.

In response to allegations that Airbnb hosts properties that flout the rules, Rotman acknowledges the current regime is “definitely not a perfect system.”

The platform works with cities including Vancouver and Toronto when a host is unlicensed or found to be out of compliance and will take “appropriate action” to address the infraction, he says.

Quebec’s changes could be a model for other provinces

The latest push for regulation comes from Quebec, in the form of Bill 25, which was passed this past week. The legislation arose quickly, largely in response to the deaths of seven people at a property hosted on Airbnb in Montreal in March, which was later found to be operating without a licence.

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The new rules will see short-term rental platforms like Airbnb be made responsible to verify that properties advertised on their platforms are properly licensed. If a host is found to be operating outside those regulations, Airbnb will face penalties — incentivizing the company to ensure its own listings are above board.

Click to play video: 'Fire survivor, housing groups calling for more action against illegal short-term rentals'
Fire survivor, housing groups calling for more action against illegal short-term rentals

Rotman says that Airbnb is still “figuring out exactly how that bill is going to impact hosting” and what its own responsibilities are, but that it will work with the government to make sure its Quebec hosts are “aware of their local responsibilities.”

B.C. is also considering changes to how it enforces regulations on short-term rentals.

Wieditz says this change — putting the onus on platforms, not the government or citizens to report bad behaviour — is a significant one that could serve as a model for other provinces.

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Previously, if one illegal posting was found, it could be reported and taken down but it became a game of “whack-a-mole” to stay ahead of the next bad actor, he says.

The Quebec legislation encourages “Airbnb to police its own inventory,” he says.

“And if Airbnb fails to do so, Airbnb will be held accountable,” Wieditz says. “I think that’s the only way to really establish accountability.”

Gallagher says that regulations are “effective” at reducing the number of listings in a market, but doing it municipality by municipality can push demand to secondary markets outside larger urban centres such as Toronto and Vancouver.

Canada’s rural tourist destinations on the country’s coastlines or at skiing resorts are seeing “a lot of growth in listings,” he says, outpacing many of the bigger cities.

Wieditz says that the growth in short-term rentals in these markets has had a negative impact on housing affordability for the seasonal workers who service tourist destinations. It’s a challenge, then, for municipalities to strike a balance between the economic growth that short-term rentals bring in and keeping housing attainable for workers, he argues.

“They can’t afford to live here and they have a hard time making ends meet with service sector wages,” he says.

Wieditz argues that a provincewide approach like Quebec’s could help smaller municipalities that don’t have the ability to enforce the kinds of regulations that Toronto and Vancouver have made work.

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Adding Quebec’s new rules to the existing frameworks in Toronto and Vancouver could go a long way in restoring housing affordability to other markets where questions persist about the impact of short-term rentals on the prices paid by residents, Wachsmuth argues.

“You can have a pretty significant impact pretty quickly in terms of reducing the negative impact that short-term rentals have on housing affordability.”

— with files from Global News’ Anne Gaviola

Click to play video: 'Canada’s housing crisis nears boiling point'
Canada’s housing crisis nears boiling point

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