The rise and fallout of short‑term rentals

In recent years, the Canadian hospitality industry has witnessed a significant transformation driven by the rapid growth of short-term rentals facilitated by platforms like Airbnb, Vrbo, and Booking.com. This evolution has prompted legislative and policy challenges by affordable housing activists, hotel industry representatives, the Hotel Association of Canada (HAC) and several provinces and municipalities actively promoting change.

Short-term rentals have become a significant issue in Canada, with an estimated 35,000 units across the country exacerbating an already acute housing shortage suggests Alnoor Gulamani, president, Bayview Group of Companies. Gulamani is an industry veteran, critic, and advocate regarding the current state of short-term rentals in Canada. Bayview is actively engaged in building and operating residential rental homes as well as hotels.

At STAY Magazine, we have tapped into Gulamani’s knowledge and opinions. Along with Gulamani’s consultation, we’ve done our homework to help Canadian hoteliers better understand this complex and pressing issue. This article should serve as both a crash course on short-term rentals and a report on where things are heading in 2024.

Short-term rentals, a primer

In recent years, short-term rentals have emerged as a lucrative and disruptive force in the Canadian housing and hospitality sectors. For Canadian businesspeople looking to understand this dynamic market, it's crucial to explore what short-term rentals are, why they pose challenges for legislators and policymakers, and their impact on both the housing industry and the traditional hotel sector.

What are short-term rentals?

Short-term rentals, often facilitated through platforms like Airbnb, HomeAway, and Vrbo, refer to the practice of renting out private properties, such as apartments, houses, or individual rooms, for short stays, typically less than 30 days. These accommodations cater to tourists, business travellers, and anyone seeking an alternative to traditional hotels.

The rapid rise of short-term rentals

The short-term rental market in Canada has experienced exponential growth in recent years. According to statistics from HAC in 2019, the short-term rental industry generated approximately $2.8 billion in revenue, and this figure has grown significantly since then. This rapid expansion has brought several challenges to the forefront.

Challenges for legislators and policymakers

• Regulatory framework: Developing a comprehensive regulatory framework for short-term rentals has proven to be a complex task. Legislators at three levels of government must balance the economic benefits of this industry with concerns over housing affordability, safety, and the preservation of residential neighbourhoods.

• Housing affordability: Short-term rentals can exacerbate housing affordability issues. As homeowners and landlords realize they can earn more through short-term rentals than traditional leases, it can reduce the supply of available long-term rental units, driving up rents.

• Community impact: Short-term rentals can change the character of neighbourhoods, as the constant turnover of guests may disrupt the sense of community and raise concerns about security and noise.

• Fraud: There have been many fake short-term rental listings online that accept reservations and payments.

Impact on housing

“We have no issue with the legitimate homeowner renting their unit while on vacation or part of their unit whilst they live there. The issue is commercially operated multi-unit operators that are taking residential units and operating them as short-term rentals. Commercial short-term rental operators are contributing to the housing crisis by taking homes off the market and driving up rents,” explains Gulamani. Seven out of ten short-term rentals units are operated as businesses, further limiting housing availability for long-term residents. The revenue potential for short-term rentals is incentivizing property owners to prefer short-term rentals over leasing to bona fide long-term residents.

“It is time for 30,000 units to be immediately added to the supply of rental housing in major cities across Canada facing a severe shortage of housing and affordable rents,” says Gulamani.

Municipalities have not been able to enforce existing regulations as short-term rental operators can flout residency requirements. The schemes usually work by paying inducements on Facebook and other online sites to get people to change addresses on their driver’s licenses so they can register themselves on multiple apartments and obtain the required licenses. Recent federal government legislation is providing funding for municipalities to enforce regulations.

“Governments must follow the money trail and require platforms such as Airbnb to disclose revenues earned by hosts by issuing T 5 slips to CRA, etc. The fines need to be increased to be a real deterrence. It is easier to enforce through disclosure from these large platforms rather than thousands of operators,” he says. The impact of short-term rentals on the Canadian housing market is multifaceted:

• Reduced housing supply: Some critics argue that the short-term rental market reduces the supply of available housing units, making it harder for Canadians to find affordable long-term rentals or purchase homes [source: Canadian Centre for Policy Alternatives].

• Increased housing costs: The competition for available housing can drive up prices, making it more expensive for people looking to rent or buy property.

• Eviction and conversion: In some cases, landlords may evict long-term tenants to convert units into more lucrative short-term rentals.

Housing Policy

“Government policy at all levels must focus on making it more attractive for the private sector to take on the many risks in developing housing including excessive regulations, uncertainty on construction costs, and high interest rates. Unfavourable capital gains taxes prevent efficient allocation of capital as it is punitive for builders to exit completed projects and recycle their capital into new projects. in the U.S., rollovers are allowed so that capital is recycled so much more efficiently, the housing market is so much more efficient and multi-family rents are coming down as builders compete for tenants,” states Gulamani. Accelerated capital cost allowances and deferral of property taxes can also help stimulate housing construction.

Impact on the hotel sector

Gulamani says that HAC has been at the forefront of advocating for fair competition and a level playing field in the hospitality industry. One of the primary challenges faced by traditional hotels is the difference in regulatory requirements and tax obligations. Hotels are subject to various taxes, including the Goods and Services Tax (GST) and the Harmonized Sales Tax (HST), while short-term rental hosts often do not have the same tax obligations.

Furthermore, with the aforementioned impact of short-term rentals on housing affordability and the availability of long-term rental units in some cities, HAC argues that the proliferation of short-term rentals can lead to higher housing costs for residents and a decrease in the supply of rental properties.