COVID-19 has decimated tourism and business travel, posing huge costs onto workers in those industries, but a fascinating side effect has been a more balanced rental market for Vancouver’s long-term renters. Asking rents for vacated units in Vancouver fell by 9 per cent in April compared to a year earlier, and 7 per cent drop relative to March 2020 (the drop is slightly larger when looking at rental cost per square foot). Nationally, new apartment listings were up 12 per cent in March over the previous month, according to Rentals.ca, which commented, “it is likely that a number of units previously used as full-time AirBnB units are now being listed for rent as the tourist and business travel markets grind to a halt.”
The current moment provides an opportunity to lock in these COVID-induced gains with a serious regulatory pushback against short-term rentals. There is obviously great uncertainty about how this situation could change over the coming months and years: business travel is likely to drop permanently as videoconferencing substitutes at a fraction of the cost; some travelers may be wary of straying too far for some time, while others will be ready to surge back. What is clear is that a large portion of Vancouver’s housing stock has been diverted to serving the needs of well-heeled visitors to the detriment of renters and the city’s overall quality of life.
Financialization and short-term rentals
The plight of tenants in Metro Vancouver is well known, with rising rents in recent years amid very low vacancy rates of around 1 per cent or less (compared to vacancy rates in a balanced market of 3-5 per cent). The 2016 census tells us that more than two in five (43 per cent) renters pay more than 30 per cent of income for their housing, and some 22 per cent of renters pay more than half their income to keep a roof over their heads.
The woes of Vancouver’s housing market are in large part due to the problem of financialization—the treatment of housing primarily as an investment, rather than a place to live. For landlords, owning rental housing is inherently about investment, and they have benefitted from low vacancy rates and a failure to build new rental housing in the region, which has pushed up rents dramatically.
The current moment provides an opportunity to lock in these COVID-induced gains with a serious regulatory pushback against short-term rentals.
Moreover, Vancouver’s overheated real estate market has created speculative pressures as purpose-built rental buildings are viewed for their potential to be redeveloped into high-density condominiums or get eaten up by Real Estate Investment Trusts (REITs) or other institutional investors.
Short-term rentals (STRs), as epitomized by market leader Airbnb, are a marriage of financialization and globalization. STRs open up new opportunities for travelers—who can rent an ordinary dwelling in a hip neighbourhood as opposed to a hotel room downtown. This is a form of gentrification in which housing stock available to long-term renters is removed, and market rents are driven higher due to increased housing scarcity. Local renters, many of whom may not be able to travel much or at all, are essentially now competing with a revolving door of affluent people from around the world.
STRs create a rent gap between what landlords currently earn in rent and what they could earn as an STR. The City of Vancouver, for example, estimated that STRs can generate between 200 and 300 per cent more net annual income for an owner in comparison to renting the unit long term. This gap creates a powerful incentive to get rid of existing tenants and rent the unit on the short-term market. With minimal investment, perhaps only the addition of some used furniture, a landlord can increase the rental income from a property substantially and perpetually.
This is a form of gentrification in which housing stock available to long-term renters is removed, and market rents are driven higher due to increased housing scarcity.
A 2017 McGill University report based on “scrapes” of the Airbnb website by consulting firm, AirDNA, found some 20,000 listings in Metro Vancouver between May 2016 and May 2017. One-quarter of the listings (4,839 units) garnered half of all Airbnb revenues ($70 million) in Metro Vancouver. The study pre-dates the new STR regulations brought in by the City of Vancouver in 2018 (discussed below). The other municipalities in Metro Vancouver do not regulate STRs.
The authors refined this further by looking only at entire homes rented for 60 days or more per year as a percentage of total housing units. They found that Airbnb essentially removed 2-3 per cent of housing off the primary residential market in certain neighbourhoods of the city. The report identifies a “triple threat”: STRs that are full-time, entire homes, and multi-listings (where hosts administer two or more entire homes or three or more private rooms). In Vancouver, these were 1,790 units, or 9 per cent of active listings, but they accounted for $46 million in revenue, or 35 percent of the total.
STR activity is not generally an issue for more traditional purpose-built rental stock, and is a greater challenge for renters of condo units and secondary suites. Almost half (46 per cent) of condos in the City of Vancouver were not occupied by their owners (37 per cent in Metro Vancouver as a whole). This points to the financialization of rental housing, with individual investors buying condos and renting them out. Prior to the end of federal rental incentive programs in 1984, it was large development corporations that built and managed rental housing portfolios.
Airbnb essentially removed 2-3 per cent of housing off the primary residential market in certain neighbourhoods of the city.
The threat may be larger if we consider interactions with transportation networks. STRs are most likely to be close to the downtown core and in certain desirable neighbourhoods. Locations along Skytrain lines are popular and correspond to where a high proportion of renters live. These are also the locations where new affordable housing should be built as they have the additional benefit of households not being dependent on automobile ownership for their mobility.
Airbnb and other corporate STR platforms are able to pocket commissions on both sides of the transaction, with some 8-18 per cent of booking revenue flowing out of the host city to investors in Silicon Valley and elsewhere. Short-term rentals in BC had $876 million in revenues in 2018, up from only $92 million in 2015, according to Statistics Canada. Some $67.9 million in fees was taken by the digital platform intermediary in 2018.
Cities move to regulate short-term rentals
Similar dynamics are playing out around the world, as destination cities move to regulate STRs and put boundaries on their operations. The City of Vancouver signed a Memorandum of Understanding with Airbnb in April 2018, and introduced new regulations to restrict STR activity, which came into effect in September 2018. At a high level the City is seeking to strike a balance between protecting long-term rental stock and allowing residents to earn extra income from their property. The challenge is the share of dedicated commercial landlords who have a powerful incentive to deliberately oust tenants in order to raise rents and maximize profits.
The City of Vancouver regulations aim to limit STR activity to within one’s principal residence, including renting private or shared rooms, and short-term rentals of the entire home when the owner is away. However, these regulations are vague and leave a lot of room for interpretation and thus evasion. The wide swath of secondary suites in the City of Vancouver would appear to be the perfect loophole for landlords wanting to create a STR. These units would otherwise be long-term rentals, and could be easily modified to be “private rooms” instead of stand-alone “homes.”
At a high level the City is seeking to strike a balance between protecting long-term rental stock and allowing residents to earn extra income from their property.
How has this worked so far? The city claimed in November 2019, after a year of having the regulations in effect, that there has been a surge of long-term rental licenses issued, 80 per cent of them for individual condo units, since regulations took effect. Independent analysis estimated some 300 previously short-term rental units had likely been returned to the long-term rental market.
The City’s STR website reports that as of May 7, 2020 there were 5,333 active listings in Vancouver, although only 2,983 business licenses were issued for 2020. There appears to have been substantial non-compliance and evasion efforts to date, and the city lists enforcement actions that have been taken: 1,528 licenses flagged for investigations and audits; 883 warning letters written; 449 legal orders issued; 1,029 violation tickets issued; 370 units identified for inspection; 89 listings referred to prosecution; and, 473 business licenses suspended.
Vancouver’s STR regulations have been likened to “whac-a-mole” with perpetually different means of skirting the regulations. For example, operators can use a fake business license number or falsely list the property as being in a neighbouring jurisdiction like Burnaby. A more stringent reporting relationship with STR operators—in order to get the right information to be able to enforce the rules—is needed.
Vancouver’s STR regulations have been likened to “whac-a-mole” with perpetually different means of skirting the regulations.
There appear to be ongoing challenges from STRs to the long-term rental market. According to Inside Airbnb, “an independent, non-commercial set of tools and data that allows you to explore how Airbnb is really being used in cities around the world”, there were 4,938 Airbnb listings in April 2020 in the City of Vancouver—even with the COVID-19 pandemic underway. Of these, some 70 per cent—3,469 units—were entire homes or apartments, as opposed to a private or shared room. This is equivalent to 2.3 per cent of the 150,750 renter households in the City of Vancouver. Data are not available for the region as a whole.
A separate data mining exercise by Vancouver mathematician Jens von Bergmann found some evidence of evasion as of early 2019 (although enforcement was just ramping up at this time). In some cases Vancouver properties had been listed as being in a neighbouring municipality like Burnaby. In other cases there were properties that appeared to skirt the regulations. It is difficult to fully assess these cases without an audit, and there are many unique situations that could trigger properties that are legitimate. The rules clearly need to be clarified or tightened up over time.
Short-term rentals and post-COVID Vancouver
COVID-19 has been a game changer for Airbnb and landlords using its platform (and others) due to the drying up of tourism, a significant drop in business travel, and the return of students and guest workers to their home countries. According to AirDNA, the occupancy rate for Airbnb across Canada fell to 41 per cent in early April 2020 from 71 per cent the year before.
How quickly and to what extent tourism, business travel and temporary residency will rebound is unclear. While it will take time for lower rents to ripple through the whole housing system, the good news for those looking to get a new place is that rents have dropped from their stratospheric highs of recent years. Thus, a stronger push to ensure more housing units are in the long-term rental supply would be welcome.
Banning short-term rentals that take away long-term rental stock, along with proper enforcement, is clearly needed across the entire region.
The City of Vancouver has stepped up to regulate short-term rentals, and almost two years in, results are mixed. A more stringent regime should aim to tighten up the rules restricting STR activity to principal residences, clarify how they operate and increase staffing resources for enforcement. The rest of Metro Vancouver is completely unregulated. Banning short-term rentals that take away long-term rental stock, along with proper enforcement, is clearly needed across the entire region.
New regulations will lead to additional much-needed rental homes, and will contribute to a higher vacancy rate and lower rents. There may also be opportunities for a provincial acquisition strategy to buy up housing stock that could be added to a pool of non-market housing managed for the long-term benefit of the regional economy.
A major push back against financialization in the form of short-term rentals won’t solve all our housing affordability challenges but it would certainly contribute to a more balanced rental market in Vancouver.
 CMHC rental housing data are generally limited to purpose-built rental, whereas rentals.ca also includes rented condos and secondary suites. And CMHC data typically look at the average rents across, most of which remains occupied by the usual tenants, as opposed to market rents being charged for someone looking to rent a place.
This post is a part of an ongoing research project into affordable housing funded by the Vancouver Foundation.