Short-term rentals reduce housing affordability: Desjardins

A new Desjardins report suggests short-term rentals likely contributed to the housing affordability crisis in Canada and around the world.

The report released Monday shows the proliferation of short-term rentals on platforms such as Airbnb and Vrbo has had a significant effect on the affordability and availability of homes by reducing the number of units available for long-term rentals and resale markets.

Randall Bartlett, senior director of Canadian economics at Desjardins, said short-term rentals are often more appealing to real estate investors because they make more money from them than long-term leases.

“From the perspective of the landlord, at a time of high and rising inflation, short-term rentals may offer them an opportunity to offset some of the rising costs because they can increase the rent more quickly than they could in the long-term rental market,” Bartlett said in an interview.

Citing a Conference Board of Canada study, the report suggests there was a correlation between Airbnb activity and higher long-term rental prices across 19 Canadian cities with short-term rentals.

It showed every one-percentage-point increase in the share of Airbnbs was associated with a 2.3% increase in rents.

The Desjardins report, using data from analytics firm AirDNA, said Canada has more than 235,800 unique active short-term rental listings on Airbnb and Vrbo, the two largest hosting platforms, amounting to about 1.4% of the country’s housing stock.

The national rental vacancy rate hit 1.9% in 2022 — significantly below what’s considered the balanced market rate of 3%, according to the report.

Municipalities across Canada and abroad have implemented a variety of policies to combat short-term rentals, the report said, in the hopes of opening up more housing supply as affordability continues to erode.

“We’re seeing this in real-time,” said Bartlett, “an experiment going on in Canada, where different jurisdictions are bringing in different regulations of various stringencies,” which he said will provide greater insight into the implications for the housing market.

Bartlett said policy crackdowns on short-term rentals have had mixed results in different jurisdictions around the world.

But, he added, it seems that restricting the use of second or third properties for short-term rentals has been the most successful in bringing more units back into the long-term rental market.

Meanwhile, allowing people to continue to use their primary residence for short-term rentals has helped sustain the app-based vacation rental market, he said.

“Having that distinction seems to support and certainly bring more rental homes back to the long-term rental market,” Bartlett said.

The report suggests governments partly restrict commercial non-principal short-term rentals, strictly enforce penalties for non-compliance and hold short-term rental platforms accountable to help ease the housing crisis.

Toronto has restricted short-term rentals to a maximum of 180 nights per year for an entire home, the report noted. However, homeowners can rent out up to three bedrooms in their primary residence for an unlimited number of nights.

In British Columbia, legislation passed in October that could return 16,000 short-term rentals to the long-term market. This requires online platform accountability — removing listings that don’t include a valid business licence and sharing information about short-term rental listings with the province, which may share it with local governments.

“At the end of the day, we need to increase supply dramatically and there are a lot of policies to do that,” Bartlett said.

He forecasts 2024 is going to be a challenging year for the housing market in Canada.

Bartlett predicts landlords will continue to feel the pressure of high interest rates on their monthly mortgage payments and a growing population will heap more demand on the housing market overall.

“There’s going to be very little price relief,” he said.

“Ultimately, the measures that are being brought in to increase supply — not just by limiting short-term rentals but also cutting the GST on purpose-built rentals and reducing exclusionary zoning — will all help in the long run to bring more supply but not going to help materially in 2024.”