Front Burner - Will the Airbnb crackdown lower rents?

Episode Date: October 25, 2023

With high living costs and rising rents, governments are going after Airbnb and Vrbo. British Columbia is the latest, along with New York and Quebec. How much are short-term rentals to blame? Will this action be enough? David Wachsmuth, a researcher and professor at the School of Urban Planning at McGill University, joins us. For transcripts of Front Burner, please visit: https://www.cbc.ca/radio/frontburner/transcripts Transcripts of each episode will be made available by the next workday.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hi, I'm Damon Fairless. What really took down Airbnb? The end of Airbnb in New York. Airbnb crackdown.

There have been a lot of headlines about the short-term rental company Airbnb over the past few months. And they've all been pretty rough. This is all happening at a time when jurisdictions across North America are introducing new rules for short-term rentals, the kind you find on sites like Airbnb and Vrbo. Search for an Airbnb in the city for next week, and most results are apartments in New Jersey or boutique hotel stays. That's because starting September 5th, the city will enforce a law that prohibits Airbnb hosts

from renting for less than 30 days. The Quebec government wants to tighten the rules and seek more accountability directly from platforms like Airbnb. If the bill passes, sites would have to verify each host has a valid, up-to-date certificate issued by the province. Officials say short-term rentals have made it harder and more expensive for folks to find places to live. Just last week, British Columbia announced new legislation, an attempt to curtail the number of people renting out multiple units they're not

living in. The province is hoping new legislation will force people to take short-term rentals off platforms like Vrbo and Airbnb. We touched on this in our episode yesterday. It was about the rent trap many people feel they're in because of how costly it's become to live in cities like Toronto and Vancouver. So today, we'll dig deeper into the impact of short-term rentals on that, and ask how far these new rules can go in actually improving affordability. Today, I'm joined by David Walksmith. He's the Canada Research Chair in Urban Governance at the School of Urban Planning at McGill University. Hey, David, thanks for coming on. Yeah, it's my pleasure to be here.

Okay, before we get into the new regulations, you've been actually looking at how short-term rentals are affecting housing affordability in BC. So what did you find? Well, you know, there's a kind of one very simple story, which is that if you look at neighborhoods where there are a lot of short-term rentals, those neighborhoods also tend to have pretty high rents. What we tried to do is we tried to kind of understand that relationship, you know, maybe with a little more sophistication. And the bottom line of what we found is that there's a pretty strong association between increases or decreases in the amount of commercial short-term rental activity on the one hand, and then changes in the rents that people pay on the other hand. And, you. And this is very much in line with

some previous research that's been done in the United States, but this is the first time we've had the opportunity to really nail down these numbers in Canada. One of the things I read that kind of stood out to me, it's just one of those really salient figures, was that you'd found that for every one dedicated short-term rental per 100 rental units in BC, that you could predict there was an average rent increase in that neighborhood by about 50 bucks, $49, I think is the figure. That seemed really significant. Yeah, it's a lot of money. And, you know, it reflects the fact that, you know, in some communities, there are a lot of short-term rentals. But, you know, but I think kind of the underlying idea really is that if you think about it, every time that somebody opens up a short-term rental, you know, on the one hand, they're kind of taking housing off the long-term market, right?

If you've got a kind of a full-time short-term rental operating in an apartment, if you didn't have that, you could be renting that out to someone. So you're decreasing the housing supply. But the other thing that's happening is that short-term rentals are kind of increasing the economic value of residential properties. Because if you think about it, if you're interested in buying a home, you're competing against people who might be up for running a short-term rental, even if you're not up for it, which means that the prices that they're willing to pay are higher because they can make a lot of money. So your prices go up. So the fact that these properties are out there in the market kind of increases everybody else's housing costs as a result. So it sounds like there's kind of a vicious cycle, so to speak, in what you're talking about. Well, a little bit, yeah, because, you know, certainly one of the things we know is that some people are operating short-term rentals kind of

more on the home-sharing side of things because they're trying to help out their own housing affordability challenges. And, you know, a lot of my research is focused more on the kind of more on the home sharing side of things because they're trying to help out their own housing affordability challenges. And, you know, a lot of my research is focused more on the kind of commercial full-time side of things, where I think that that's where, you know, having the biggest impacts on the market. But without question, there is some extent to which short-term rentals make housing more expensive. So some people want to run more short-term rentals, which makes housing more expensive. So. Last week, BC said that they're going to start charging short-term rental owners higher fines for breaking municipal law.

So that's up from $1,000 a day to $3,000. Beyond that, what's BC asking platforms and hosts to do? Well, there are two really big significant things coming in here in this proposed legislation. The first one is that BC is joining Quebec and Nova Scotia in operating a provincial short-term rental registry. So every short-term rental host in the province is going to have to register with the province, give their name, give them their information. Short-term rental companies will be required to share data with the province and show business registration numbers on the listings. This will help local enforcement. If hosts are not playing by the rules,

this legislation will require platforms to take down those listings. This is significant because right now in BC, you know, Vancouver was a real pioneer at short-term rental regulations. Victoria has followed suit. But right now, every municipality has been kind of on its own. So the province has realized, you know, every town more or less needs to do the same thing as far as collecting information from hosts.

Let's just do that once and let's do it well. So that's a big, significant step on its own terms. And I guess I should say that part of the reason here is that all the activity on short-term rental platforms is anonymous, right? You book a rental from someone named Alice, but is that really the real name? Is that really the real photo? Who knows? Right.

And so you do need that registration to happen so the governments know who they're dealing with. Um, so that, so just doing that provincially is already a big step. And again, it's what we have here in Quebec. It's a model that I think we're learning works quite well. But the other thing that BC has done where they go quite a bit further than what any other province has done is that they've instituted a principal residence restriction in most of the province, which means generally speaking, with a few asterisks, you're only going to be allowed to operate a short-term

rental in the home where you actually live. The proposed law restricts short-term rentals to within a host's home, a basement suite, or laneway home on the property where they live. This is something that we've seen at the city level, Vancouver, for example, but we haven't yet seen a province try to take the same approach. And it sounds like the province has basically said that they're going after people who have multiple short-term units in homes they don't live in. So the opposite of what you're talking about there. Do you have any sense of how many Airbnbs or Vrbo hosts fit that description of, you know, people who have multiple units,

they're not living in it? Yeah. So, you know, the answer basically is that it's a small number of hosts, but they have a lot, a large number of units, if that makes sense, because, you know, the short-term rental market in BC, you know, very similar to the rest of the country. BC, you know, very similar to the rest of the country. What it looks like is on the one hand, a lot of people who are doing very casual home sharing and they only, they don't do it very often. So, you know, you've got a spare bedroom and you rent it out from time to time, or maybe you rent out your, your, your whole residence when you're on vacation, but that only happens once a year. So there are a lot of those folks, but, but the fact is because they're not very active, they don't actually account for a lot of the market. but the fact is, because they're not very active,

they don't actually account for a lot of the market. The other part of the market is a small number of hosts who are running full-time operations, or in some cases, many full-time operations. And what we've found in general with our research, and kind of was true as well in the BC case more recently, is that roughly 10% of hosts are earning a majority of the money on Airbnb and other platforms. So it's a small number. Since these new rules were announced, some of the Airbnb hosts

who are running those kind of operations, folks that have units specifically for that sort of rental, they've said that they're being unfairly penalized because they were, they built those businesses or they had those places running under regulations before these were passed. And that was fine, right? That wasn't against the law at that point. The province says the goal is to target owners who list multiple units, but those who bank on just one feel like they're innocent bystanders. It's going to decrease the value of our property,

and we're not going to be able to find anyone who wants to rent it at a price, a long-term rental that would be able to afford the cost to cover our mortgage. Do you think there should be some exceptions made for folks like that, like a grandfather clause, for instance? Yeah, it's a fair point. I mean, I think in general, in kind of local planning, we have this concept of grandfathering in rules or what are called legal nonconforming uses. The problem is that, of course, if you allow that, you're also, you know, you're kind of creating some very weird kind of future incentives where you've got a set of folks who more or less have the kind of golden ticket that's going to allow them to keep making tons and tons of money and probably more money, right? Because if nobody else is allowed to do this anymore, it's going to be very lucrative. So, you know, I have a lot of sympathy for people in that situation.

But I also, you know, I think that unlike a lot of other ways you could be operating a business, one of the good things, if you need to transition out of the short-term rental business, is that long-term rentals are a perfectly reasonable alternative. So, you know, it's not like there's been a huge amount of, say, capital investment. People aren't like building factories to operate their short-term rentals. They're taking homes, which could otherwise have tenants, and choosing to put tourists in them instead. So they could just make a different choice, which is, let's find some tenants. And that's exactly what the province wants.

Now, I should mention, too, that Airbnb has said that they don't agree with these new regulations. I'm going to quote here. An Airbnb policy manager told CBC, The B.C BC government's proposed legislation won't alleviate the province's housing concerns. Instead, it'll take money out of the pockets of British Columbians, make travel more unaffordable for millions of residents who travel within BC,

and reduce tourism spending in communities where hosts are often the only providers of local accommodations. What do you make of that response? Well, I think that those are reasonable concerns, but I don't think that they are reasonable criticisms of this legislation. And there are two reasons for this. The first is that BC is the legislation very specifically exempts tourist municipalities from this principal residence restriction. So if you're talking about Whistler, if you're talking about Tofino, if you're talking about exactly these kinds of communities that Airbnb statement is referring to, where I think everybody understands dedicated vacation homes are a very important part of the kind of accommodation landscape for tourists. Nothing's changing in those communities. You're still going to be allowed to operate your Airbnb businesses there.

You'll have to register with the province, but there's not going to be any restriction in place. The restrictions only apply in communities that don't fit that. I mean, you know, basically in cities where you would expect to see hotels. But the other part, the other kind of issue here is that the rules that BC is proposing aren't making it illegal to operate an Airbnb. They're making it illegal to operate a commercial Airbnb in cities. And the alternative is home sharing, which is what used to kind of dominate short-term rental markets. And I think we would hope to see a lot more of in the wake of this legislation. So it's not like Airbnb is going to go away. It's just that it's going to be less full-time operations and more home sharing operations.

Airbnb also kind of had issue with your report. It pointed out that because it was commissioned by the BC Hotel Association, it wasn't credible. What's your response to that? Oh, well, yeah. The report that I did recently was commissioned by the BC Hotel Association. nearly a decade on this topic, as well as the research that, you know, I think most other academics like myself have conducted on that topic, which is, you know, there's a pretty kind of unanimous set of findings, which is that commercial short-term rentals, they take housing off the long-term market,

and that has some negative consequences for renters. In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization. Empowering Canada's entrepreneurs through angel investment and industry connections. Hi, it's Ramit Sethi here. You may have seen my money show on Netflix. I've been talking about money for 20 years. I've talked to millions of people and I have some startling numbers to share with you.

Did you know that of the people I speak to, 50% of them do not know their own household income. That's not a typo. 50%. That's because money is confusing. In my new book and podcast, Money for Couples, I help you and your partner create a financial vision together. To listen to this podcast, just search for Money for Couples. Okay, so on an even larger scale than what we're seeing here in Canada, there's New York City, where there have been similar regulations introduced. And those have had some people saying that it's the death of Airbnb in New York. It's one of the biggest tourist destinations in the world, obviously. What's the impact been there? Well, yeah, what New York has introduced recently, it goes just so much further than what BC has proposed and also what any community in Canada, I think, is likely to undertake.

Which is, in New York, you're now only allowed to operate a short-term rental if you're physically on-site for the duration of the time and it can't be your entire home. So there's some additional restrictions on top of that. And it can't be your entire home. So there's some additional restrictions on top of that. So, you know, the city government there has, for whatever reason, made the decision that they really want to just absolutely shrink the short by, you know, reducing all these options, that kind of thing. I think that, I don't think that's a fair description of what's happening in BC, but I do think that kind of description is fair to describe what's happening in New York. And, you know, I think that it's totally reasonable for different communities to have different priorities here. My feeling is that New York's rules probably have kind of crossed the sweet spot in terms of the cost benefit,

the trade-offs, and are getting into the area of what we'd say are kind of diminishing returns, where I'm not sure that there's a lot of public policy justification for setting the restrictions so tightly. New York seems maybe to be throwing the baby out with the bathwater here. So turning from New York to Quebec, the province announced regulations on short-term rentals that came into effect in September. How have they been working so far in Quebec? Yeah. So Quebec actually rolled out its kind of big short-term rental regulations first in May of 2020, which, you know, it wasn't their fault, but that wasn't a great time to introduce a big new policy. You know, everybody had a lot of other stuff on their minds in the first couple months of the pandemic. And certainly there wasn't

like there was any action booking short-term rentals at that time. So the rules have existed for many years, but, you know, frankly have mostly just been ignored. After the fire that happened in Old Montreal last March where seven people died and, you know, an illegal Airbnb was kind of at the heart of that, the province decided they were really going to, they wanted to step up the enforcement. When we called them in the meeting earlier this month, I think I made it extremely clear, extremely clear that it's game on and here are the new rules. And so there have been a set of rule changes, the most recent of which just came into effect last month, which, you know, the basic idea of which is to say Airbnb, the company, is going to be held accountable for making sure that hosts are following the rules on its platform.

So the big point is that the province is going to fine Airbnb $100,000 per listing for any listing that's operating without a valid permit. So if they put online five ads that are false, it's five times $100,000. And Airbnb is going to be responsible for ensuring that the permit's valid. So those are big enough dollars that you either comply or you get out, basically. And so far, the early evidence is that it's going very well. I guess enough zeros after the one there that the Airbnb decide that they're going to have to comply. And is that basically the, I guess it's more stick than carrot, but is that how that particular stick works in terms of enforcing these new rules? Is that the primary driver of

people adhering to it? Yeah. So the thing is that you can, if you think about it, you can either try to kind of target your enforcement at the human beings operating the listings, or you can target the enforcement at the platform that allows them to operate the listings. And you can kind of see, I think, why doing, if you're going after the individuals, that's really a kind of a whack-a-mole type situation where there are just so many thousands and thousands of these hosts. That's a losing game. And what Quebecers realize is that the only viable path to getting these kinds of rules to be followed is to make sure that the platform is accountable for the enforcement. And so that's what they've done. And it's working. Again, Quebec doesn't have any other rules. It's not like

they're banning commercial short-term rentals. You know, far from it. They're just saying if you want to operate an Airbnb in the province, you have to register with the government. And you have to have a valid permit number displayed. And the evidence is that now that is, you know, true in basically every case. And I think BC is, you know, what they propose is going to accomplish very much the same thing. It's going to be the onus is on the platforms to make sure that people are following the law.

And I think they will. On the affordability front, when it comes to tackling the housing crisis, how far does cracking down on short-term rentals like this go when it comes to slowing rising rents? Yeah, so it's a really good question. You know, the way that I would put this is that short-term rentals are very clearly not the biggest housing affordability issue anywhere in Canada. There are, you know, we've had all sorts of struggles, and there's a whole complex set of causes. And, you know, at the heart of those is

basically the question of how do we make sure there's enough housing out there for people to live in, and particularly enough rental housing, and particularly, again, enough affordable rental housing, which is just kind of where we had decades and decades of no new rental housing being built in the country and we're starting to recover from. So the housing crisis is this big sprawling problem. And it's complicated now by much higher interest rates, which make borrowing money either to buy a house or also to construct new housing more expensive than it used to be. So short-term rentals are not at the top of that list. I don't think anybody would claim that they are. The thing that makes them stand out though, from a policy perspective, is that they're the low-hanging fruit. You know, that if you think

about, if you want us, if you say, well, we need to build, you know, tens of thousands of more units of housing every year. Like, I mean, I 100% agree with that. But one of the problems is that it's not really clear we have the excess capacity in the construction industry to do that, even if we wanted to. You know, it's a question of training people. It's a really clear we have the excess capacity in the construction industry to do that, even if we wanted to. It's a question of training people. It's a question of getting the raw materials. I think those questions can be answered, but it's going to be a multi-year process. By contrast, what BC is doing is going to get thousands of homes back onto the housing market next year.

It's going to happen fast. So I don't think it's the most important issue at all, but I think it's the low-hanging fruit. It's the one that governments should include as part of a kind of broad range of policies that are looking to help with housing affordability. All right. Thanks so much, David. Appreciate it. Yeah. My pleasure to have the conversation. All right, that's it for today. I'm Damon Fairless. Thanks so much for listening to FrontBurner.

I'll talk to you tomorrow. For more CBC Podcasts, go to cbc.ca slash podcasts.