Short-term rentals vs. long-term problems
Charlottetown’s proposed Airbnb rules might not improve housing affordability — not without more comprehensive reform.
When most Canadians think of Prince Edward Island, a mix of quirky and quaint views come to mind. Literary and TV buffs will quickly identify Canada’s smallest province as the backdrop for Lucy Maud Montgomery’s acclaimed Anne of Green Gables series. Political junkies might reflect on PEI’s significant contributions to pivotal national events such as Confederation, the Senate scandal, and Atlantic Canada’s highly successful COVID-19 response.
What is less likely to come to mind for mainland Canada is a much more sinister problem facing the province: there is a debilitating housing shortage in the province’s capital.
Charlottetown’s rental market has regularly suffered from low vacancy rates. The problem reached its peak in October 2018 when the rate was a measly 0.2%. In 2020, the Globe and Mail claimed that the province’s housing crisis was the worst in Canada. In looking for the cause of Charlottetown’s housing woes, local commentators and city officials believe they have found a culprit in short-term rental (STR) platforms like Airbnb and VRBO.
To the City’s credit, there is some truth to the claim that STRs make housing less affordable. On May 17, the City had a public meeting on STR regulations where they attributed the growth of Airbnb-type services to the decline of long-term rental availability. Charlottetown estimates that 135 housing units were removed from the long-term rental supply, representing a 2% decrease in the vacancy rate. As a result, the reduction in long-term housing supply has increased rental costs by over 37% since 2017.
Prior to COVID-19, Charlottetown was among the fastest growing markets for STR listings. The rapid growth of STRs, the City argues, has been driven by a small number of operators who have commercialized the process. Commercial STRs perform better than home-sharing listings, accounting for around 60% of revenues compared to the 40% share held by their owner-occupied counterparts. STR hosts also benefit from weak enforcement capacity. More than half of operational listings failing to comply with existing provincial and municipal regulations.
To respond to these alarming issues, the City proposed five scenarios for how to restrict STR activity. Each scenario is projected to bring the long-term rental vacancy rate to at least 3% in 2022.
Permit STRs in any principal residence except apartments, with no allowance for commercial STRs. 2022 vacancy rate: 3.9%.
Permit STRs in any principal residence including apartments, with no allowance for commercial STRs. 2022 vacancy rate: 3.8%.
Permit STRs in any principal residence except apartments, with allowance for commercial STRs in zones that would permit a hotel. 2022 vacancy rate: 3.3%.
Permit STRs in any principal residence including apartments, with allowance for commercial STRs in zones that would permit a hotel. 2022 vacancy rate: 3.3%. Scenario 4 is City Council’s preferred option.
Permit STRs in any principal residence including apartments, with allowance for commercial STRs in zones that would permit a hotel and in parts of the downtown. 2022 vacancy rate: 3.0%.
The public provided mixed responses to the scenarios at the May 17 meeting. Arguments were made in favour of and against regulating the service by tenants, activists, and STR operators alike. Opponents of Airbnb cited anecdotes of renovictions, rogue landlords, and discriminatory practices that have been allowed to persist under the current framework. Many owners of Airbnb units discussed the value of STR revenues in covering their mortgages and renovations while supporting the local economy. Despite the differences in perspectives from both sides the debate, there appeared to be a soft public consensus around Scenario 2 for its willingness to accept apartments into a future STR market.
In principle, each of the five proposed scenarios would have a significant impact on the number of available units in Charlottetown’s troubled rental market. Despite its aspirations in improving access to housing, the City’s presentation accidentally hinted at three glaring problems with their approach.
First, the City did not discuss how compliance rates would be improved. The presentation highlighted Charlottetown’s lackluster compliance rate of 58%. While they seems eager to improve STR compliance, the city planners pointed to Vancouver as the jurisdiction with the highest rate at only 75%. It is not clear how any of the five proposed scenarios can necessarily attain their projected long-term vacancy rates if, at a minimum, 25% of the STR market stays non-compliant.
Second, neither the City nor the public discussed whether the projected vacancy rates would account for market exit. It is likely that many of the STR operators (especially those who own multiple listings) purchased properties for the sole purpose of converting them into STR listings. The City may have to brace for the inevitability of some units not rejoining the long-term rental supply. Charlottetown might need to prepare for an uptick in empty apartments, with former STR operators acting more as housing market speculators than newly productive landlords.
Third, though not directly related to the STR debate, the City offered no insights into whether other measures were being taken to increase the supply of housing and rental units. While the City didn’t intend to show the magnitude of this problem, they inadvertently did when they showed a zoning map during their presentation. Much of Charlottetown, especially north of Euston road, is zoned for single-detached (R1) and low-density (R2) residential use. This designation bars landlords from adding more units to their property, be they through infills, granny suites, or the constructions of multi-dwelling units such as duplexes or triplexes.
In jurisdictions where zoning rules are relaxed, there is clear evidence of a reversal in the trend being observed in Charlottetown. Moreover, there is a growing body of research supporting the observation that adding market-rate rental units in North American cities leads to fewer tenant displacements — this is likely due to the increased competition among landlords for prospective renters.
These concerns shouldn’t discourage the City from continuing on the STR regulatory pathway. Curbing Airbnb activity in Charlottetown will bring some rental units back to the long-term market while addressing other externalities like tenant displacement and noise nuisance. However, it is important to not use STR regulations as a policy crutch when the City has far more substantive alternatives (like intensification and inclusionary zoning) at their disposal. If Charlottetown is serious about making housing more accessible and affordable, legalizing housing might be a better strategy than banning short-term rentals on their own.
