Around the time of the economic meltdown of 2008-2009, we began to hear about the “Sharing Economy.” Buoyed by the swift growth of social-media platforms, a wide range of web-based applications promised to open up new revenue streams for all sorts of individuals and businesses, who could now connect personally with strangers from around the globe to sell or barter everything from pet-sitting services to home repair and car-sharing.
One of the most popular — and most disruptive — is Airbnb, which began with the praiseworthy goal of helping ordinary people earn a little bit of extra money by renting out unused living space to occasional visitors. But — like similar apps such as Uber — Airbnb and other “short-term rental” or STR apps quickly gave rise to problems that no one had anticipated, such as noise and damage to property caused by unruly guests.
In the years leading up to the pandemic, pundits began to discuss a phenomenon dubbed the “Airbnb Effect.” A 2019 study by researchers at the University of Hong Kong and Carnegie Mellon University found that short-term rentals tend to “cannibalize” local rental-housing stock because they are able to offer higher revenue than long-term rentals. A 2020 article in the journal Marketing Science estimated that “a one-per-cent increase in Airbnb listings leads to a 0.018-per-cent increase in rents and a 0.026-per-cent increase in house prices.”
In addition, STRs put pressure on an already stressed hospitality sector, especially since they have escaped many of the requirements faced by traditional hotel and motel operators, such as taxation and insurance, while offering fewer amenities. Somewhat ironically, traditional hospitality-industry players in some markets are finding it even harder to retain employees, because of the shrinking pool of affordable housing.
“The concept of Airbnb in its original form is a great concept, and that is not at all what we have a problem with,” says Adrienne Foster, vice-president of Policy and Public Affairs with the Hotel Association of Canada (HAC), based in Ottawa. “But we do have a problem with those commercial operators who are basically operating hotels that are unregulated.”
In late September, Fredericton mayor Kate Rogers became the latest municipal leader to call for a review of local policies around short-term rentals on the grounds that they were draining her city’s supply of affordable housing, saying “it’s a free-for-all. In a way, it’s the wild, wild West.”
“One of the things we’re seeing more and more is that hidden fees are piling up, like three-digit cleaning fees,” says Foster. “Hotels do not ask guest to vacuum or strip beds at the end of their stay.”
But there are signs that the days of unfettered growth for STRs may be at an end. For one thing, the typical post-pandemic traveller is more concerned with the quality of the experience than the price of the room.
“People are looking for that white-glove service,” Foster says, pointing out that STRs are no longer the bargain they once were, partly because “interest rates are rising, and hosts are downloading their mortgage costs onto their guests.”
Also, she says, “there’s a real disillusionment from an ethical standpoint; millennials especially are re-considering short-term rentals because they have a better understanding of their impact on the cost of housing, neighbourhood issues and safety issues.”
Larger cities were the first to feel the pressure of STRs on their housing markets, and some, such as Vancouver, Ottawa and Toronto, have already put regulations in place to manage the STR sector. Most of these stipulate that only a primary residence can be rented as an STR.
In 2018, Vancouver brought in regulations that returned some 500 homes to the long-term rental supply within one year and reduced short-term rental listings by 50 per cent by 2021. Quebec has its own legislation that covers not only Montreal but the entire province, limiting STRs to principal residences only. Enforcement is the responsibility of each municipality.
Toronto imposed regulations in 2021 that require short-term rental companies to register with the city and to be able to prove that the short-term rental is the operator’s principal residence. Owners must register with the city, obtain a license and pay a 4-per-cent Municipal Accommodation Tax.
Ottawa introduced regulations in July 2022 that require STRs to register with the city and hosts to obtain a short-term rental permit, maintain appropriate insurance and pay a four per cent Municipal Accommodations Tax like Toronto’s. In addition, the federal government requires STR operators to remit HST or GST.
“We’ve had some big wins,” says Foster. “Where we’re working now is to look at provincial legislation; Quebec is the only province with province-wide legislation, and that is something that we’d like to see across the country.” Meanwhile, HAC is also conducting its own research into the economic impact and housing implications of short-term rentals.
BY SARAH B. HOOD