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The rise and fallout of short‑term rentals
Policy & The Law PROFILE: feature from the WINTER 2024 issue of STAY Magazine
With Alnoor Gulamani, president, Bayview Group of Companies
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.
“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.
HAC has been engaged in advocating for legislative changes to address these challenges, calling for fair and consistent regulations across all types of accommodations, including short-term rentals. The association argues that this would ensure a level playing field and create a fair competitive environment.
HAC's advocacy efforts have not been in vain, as some municipalities and provinces have taken steps to regulate short-term rentals more rigorously.
Short-term rentals have disrupted the traditional hotel sector in several ways:
• Competition: Short-term rentals have introduced intense competition for hotels, often offering lower prices, unique accommodations, and a more personalized experience.
• Market share: Many travellers now prefer the convenience and affordability of short-term rentals, causing traditional hotels to lose market share.
• Adaptation: In response, hotels are diversifying their offerings, enhancing guest experiences, and incorporating elements of the sharing economy to stay competitive.
Perspective from major Canadian markets, provinces and territories
Canada's approach to regulating short-term rentals varies by province and municipality. Many cities have implemented bylaws to address issues like noise complaints, zoning regulations, and taxation. Some provinces, such as British Columbia and Quebec, have taken a more comprehensive approach by introducing legislation to regulate the short-term rental market.
For example, in British Columbia, the government introduced the "Housing and Tenancy Act" in 2018, which required short-term rental hosts to obtain a license and adhere to specific regulations. This legislation aimed to strike a balance between preserving affordable housing and allowing homeowners to participate in the sharing economy.
As of September 10, 2020, the City of Toronto requires a rental license for any rental lasting less than 28 consecutive days. However, enforcement is a significant issue, as short-term rental owners find ways to circumvent regulations. Some even run over 100 units in cities like Toronto, thanks to lax enforcement and penalties as low as $1,000 per year.
To address these issues, several recommendations are proposed:
• Increase fines and enforcement: Advocate for higher fines to cover the costs of enforcement and act as a deterrent.
• CRA involvement and taxation: Encourage the Canada Revenue Agency (CRA) to enforce taxation on short-term rental hosts and require platforms like Airbnb to issue tax slips, facilitating income tax collection and data tracking.
• Federal-provincial collaboration: Convene a federal-provincial housing table to accelerate the development and enforcement of regulations.
• Updated regulations: Revise regulations to mandate that the host must live on the property (principal residence) and be present when guests stay. Additionally, impose a limit on the number of guests per stay.
• Platform accountability: Hold platforms like Airbnb accountable and taxable, as they are easier to regulate than thousands of individual operators.
• Minimum standards: Establish minimum standards for fire safety, security, and privacy to ensure the well-being of guests.
British Columbia's response:
• In British Columbia, the Short-Term Rental Accommodations Act aims to tackle the growing challenge of short-term rentals diverting long-term rentals into the short-term market. The new rules strengthen local government tools for enforcement, return units to the long-term rental market, and establish provincial oversight. Key measures include increased fines, business licensing authority for regional districts, and a provincial principal residence requirement.
• As Canada grapples with the impact of short-term rentals on housing availability, stricter regulations and enforcement measures are essential. Learning from global examples and adopting comprehensive policies, including taxation and platform accountability, can help strike a balance between the sharing economy and the need for stable housing options for Canadians.
Examining the impact of short-term rental regulations globally, cities like New York City have implemented stringent laws—more specifically a piece of legislation entitled “Local Law 18”—to control the industry, resulting in Airbnb describing it as a "de facto ban" on its business. The regulations, enforced in September 2023, focus on collaboration with booking platforms, registration, and verification of hosts.
The landscape of short-term rentals in Canada is continually evolving, with various provinces and municipalities taking steps to address the associated challenges. Advocates like Gulamani and HAC continue to lobby for fair competition and regulatory consistency within the hospitality industry.
As hoteliers and stakeholders in the hospitality industry, it is crucial to stay informed about the changing legislative and policy landscape. The ongoing advocacy efforts by the HAC serve as a reminder that the industry is adapting to the changing times, working towards a more equitable environment for all players.
• Investopedia – “Top Cities Where Airbnb is Legal or Illegal”
• Wired – “Airbnb Ban in New York City”
• Government of British Columbia - Short-Term Rental Accommodations Act
• The Hotel Association of Canada