Are Short-Term Rentals Really Causing the Housing Crisis?

Canada’s rental market has been a hot topic for years, with affordability becoming a growing concern for renters and policymakers alike. While cities like Toronto and Vancouver have always been expensive, rising costs in mid-sized cities have intensified the housing debate. Large cities, in particular, are struggling to house new immigrants and lower-income residents.

Many factors contribute to high rents, including population growth, interest rates, and housing supply shortages, but one of the more controversial is short-term rental apps. Critics argue that these platforms remove long-term rental units from the market, driving up the cost of the remaining rental units and making it harder for long-term renters to find housing in their price range.

How much of an impact do short-term rental apps really have on Canada’s rental market? Let’s take a closer look.

Is Airbnb Really Causing the Housing Crisis?

Critics assert that the short-term rental market has caused the challenges renters face today. David Wachsmuth, one of the world’s leading experts on the effect of short-term rental platforms on cities, conducted a comprehensive study in 2017 that found that Airbnb alone had removed up to 13,700 units of housing from rental markets in Montreal, Toronto and Vancouver.

Others point to studies, like one report from the Conference Board of Canada, that suggest activity levels through short-term rental apps did not create the astronomical rents recorded in today’s climate.

“We tested for a causal link between Airbnb activity and rent increases between 2016 and 2022 across 330 neighbourhoods in 19 Canadian cities,” the Conference Board study stated. “We find no compelling evidence that the level of Airbnb activity had a meaningful impact on rents.”

The Reality About the Housing Crisis

As with many issues, the reality of the relationship between short-term rentals and the housing crisis is far more complex than a list of pros and cons. The impact on rents and rental availability depends on several factors.

Housing Supply and Vacancy Rates

If housing supply is already limited and vacancy rates are low, short-term rental units can exacerbate housing shortages by reducing the number of long-term rental units available. However, in cities with an adequate supply of housing, short-term rentals have less of an impact.

Tourism Demand

Cities with high tourism demand, such as New York, Barcelona, and Vancouver, often see property owners converting long-term rentals into short-term rental units. This removes more units from the long-term rental market. Cities with less tourism are not as severely impacted.

The Profitability Gap

Where landlords can earn significantly more from short-term rentals than from long-term leases, they are more likely to convert their properties to short term rental units. This might happen in areas with limited hotel supply, cities with strong event-driven demand, and cities with little or no tenant protections.

Population Growth Trends

Rapid population growth, increased job opportunities, or an influx of students can drive up rental demand, making the impact of short-term rentals more pronounced.

Alternative Accommodations

If hotels and other accommodations are abundant and reasonably priced, travellers may be less reliant on Airbnb rentals, which reduces their impact on the long-term rental market. Part of the reason travellers enjoy staying at a short-term rental is because they often have cooking and food storage facilities. In areas where there are alternative accommodations that offer these same amenities, the influence of short-term rentals will be lower.

Rent Control, Regulations, and Speculative Buying

The impact of short-term rentals on housing availability and rents depends to some extent on regulations and sanctions.

Cities that have strong rent control and tenant protections will not see as much of an impact because landlords cannot increase rents drastically or convert their units to short-term rentals as easily.

Governments can also put restrictions on whether investors can purchase multiple properties to operate as short-term rental units.

Other regulations require a minimum rental period such as 30 days, while some cities do not allow a property to be operated as a short-term rental at all unless the host is present. Others only allow property owners to rent out their homes as short-term rental units for a few months a year.

Airbnb conducts its own lobbying efforts to reduce regulations that affect them, but these efforts are often countered by tenants’ organizations, hotel industry associations, and community and housing advocacy groups.

Does Regulation Help with the Short-Term Rental Housing Crisis?

Governments all over the world have launched programs to reduce the impact of short-term rental units on long-term housing. But do these rules actually help with housing availability and affordability?

Do Regulations Return Units to the Long-Term Rental Market?

One of the main arguments for regulating short-term rentals is that restrictions encourage property owners to return units to the long-term rental market, increasing housing supply for residents. This has been successful in New York City and in Vancouver, but the impact on rents has been debated.

Are the Regulations Enforced?

Many cities struggle to track illegal short-term rental operations, as hosts find loopholes or list properties under different names. Cities like Barcelona and Paris have fined short-term rental companies millions for non-compliance, but illegal listings persist.

With advancements in AI, regulators should be able to track down violators more easily, but whether property owners will use it to find even more workarounds remains to be seen.

Pressures to Balance Tourism and Housing Needs

Some cities try to find the middle ground, allowing short-term rentals to operate in designated areas, for limited times of the year, or for maximum days over the course of a year. These cities have reported some success, but challenges remain.

Trends in Short-Term Accommodations

Although short-term rentals were extremely popular a few years ago, increasing regulations and changing traveller preferences have reduced that popularity:

Post-Pandemic Preferences

The COVID-19 pandemic boosted demand for private accommodations due to health concerns. Post-pandemic normalcy has seen travellers reverting to traditional accommodations such as hotels where the amenities can be more appealing.

Regulations and Enforcement

Increasing regulation and more effective enforcement have reduced the availability of short-term rentals.

Increased Fees and Costs

Fees and surcharges, such as cleaning costs, have made short-term rentals less cost-effective for travellers and made hotels a better choice for many.

Privacy and Safety Concerns

Recent incidents involving hidden cameras, faulty locks, and inadequate safety measures, such as on-site staff, have raised concerns for people who frequented short-term rentals in the past. Many see traditional accommodations as the wiser choice.

Whatever your position on short-term rentals may be, it is still imperative for governments to understand the housing market situation. David Dale-Johnson, Executive Professor and the Stan Melton Chair in Real Estate at the Alberta School of Business at the University of Alberta, recently told Radio-Canada that gathering as much information as possible is crucial.

“Given increasing immigration and the shortage of housing that we anticipate going forward, it’s extremely important for local governments to know what’s happening to their housing stock,” Dale-Johnson said.