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Short-term rentals have 'significantly impacted' housing affordability

A recent report from Desjardins sheds light on the role of short-term rentals in exacerbating the housing affordability crisis in Canada, echoing global concerns. Released on Monday, the report highlights the profound impact of platforms like Airbnb and Vrbo, revealing a significant reduction in the availability and affordability of homes, particularly in the long-term rental and resale markets.

Randall Bartlett, Senior Director of Canadian Economics at Desjardins, emphasizes that short-term rentals are attractive to real estate investors due to their higher profitability compared to long-term leases. In an interview, Bartlett notes that landlords view short-term rentals as a means to offset rising costs during periods of high and increasing inflation, allowing for quicker adjustments to rental rates than in the long-term market.

The report draws on a Conference Board of Canada study, indicating a correlation between Airbnb activity and elevated long-term rental prices across 19 Canadian cities. According to the study, a one-percentage-point increase in the share of Airbnbs corresponds to a 2.3 per cent rise in rents.

Utilizing data from analytics firm AirDNA, the report reveals that Canada has over 235,800 unique active short-term rental listings on Airbnb and Vrbo, constituting approximately 1.4 per cent of the country's housing stock. This surge in short-term rentals is linked to a national rental vacancy rate of 1.9 per cent in 2022, well below the balanced market rate of three per cent.

Municipalities across Canada and globally have implemented diverse policies to counter the short-term rental surge, aiming to boost housing supply as affordability diminishes. Bartlett describes an ongoing experiment in Canada where different jurisdictions are adopting varying regulations, providing valuable insights into the implications for the housing market.

Policy crackdowns on short-term rentals have yielded mixed results globally, but restricting the use of secondary properties for such rentals appears to be the most successful strategy, according to Bartlett. Meanwhile, allowing primary residences to be used for short-term rentals sustains the app-based vacation rental market.

The Desjardins report recommends that governments restrict commercial non-principal short-term rentals, strictly enforce penalties for non-compliance, and hold short-term rental platforms accountable to alleviate the housing crisis. Examples include Toronto's limitation of short-term rentals to 180 nights per year for entire homes, and British Columbia's legislation requiring online platform accountability to potentially return 16,000 short-term rentals to the long-term market.

In response, Nathan Rotman, Canada Policy Lead with Airbnb, criticized the report as misleading, asserting that it fails to consider Canadians sharing their primary residence or cottage. Rotman contends that strict short-term rental regulations have not alleviated Canada's housing crisis.

Bartlett emphasizes the need to dramatically increase housing supply, forecasting a challenging 2024 for the Canadian housing market. With landlords facing pressure from high interest rates and a growing population increasing demand, he suggests that measures such as limiting short-term rentals, cutting GST on purpose-built rentals, and reducing exclusionary zoning will contribute to long-term supply but offer limited relief in 2024.

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