As homeowners and investors struggle to cover increased mortgage payments and other debts, there’s been a noticeable spike in the number of short-term rentals.
The increase in short-term rentals is revealed in data provided by Inside Airbnb, an American based non-profit that gathers data on Airbnb listings and is starting to do a deeper dive in Canadian cities. And those who work in real estate are also taking notice, including Joy Chao, co-owner of JHA interior design, a company that deals in major renovations and new builds, mostly in Vancouver and Richmond, BC
“We have seen more and more clients asking … either to have a laneway house put in or a legal basement suite put in for both long term and short term rental,” Ms. Chao says. “Some of them can get financially quite a bit more for short term rentals.”
Ms. Chao said the increased interest rate is a major incentive for switching to short-term rental listings, which can command rents that are significantly higher than long-term rents. One west side client who owns a property with a basement suite and a laneway house rented both out for short-term rentals and collected between $8,000 to $9,000 a month last summer, he says.
“It was designed in such a way that no matter how you slice it, it’s going to be a high end rental, with nice appliances, in-suite laundry for both the laneway and the basement suite, and so between the two areas he realized a significant financial gain for sure,” Ms. Chao said.
Vacation rental operator Deana Steele has heard from more than 40 investors since the start of the year who want to rent out vacation rental units. Kelowna, BC, is a growing condo market for investors, with 52.4 per cent of investor-owned condos, according to the Canadian Housing Statistics Program. There are several condo towers zoned to include vacation rentals, such as the new Aqua, a waterfront tower complex.
Her Keys to Kelowna Properties firm brings short-term rentals online, and she focuses on the high-end market. Right now she’s seeing a glut of all kinds of investors trying to cover their costs by turning to vacation rentals.
There’s a reason. An ultra-luxury home worth more than $3-million can bring in $100,000 to $120,000 a month in rental income in the high season, based on nightly bookings, according to Ms. Steele. Newer family homes are priced at $1-million to $2-million can bring in $40,000 a month in the high season. A luxury condo can bring in around $15,000 to $20,000 a month and a standard condo around $7,000 to $12,000 per month, although that category really varies, she says. In the low season, the revenues are substantially lower, around $10,000 a month for the $3-million homes, $7,000 a month for the newer family homes and $5,000 a month for the luxury condos.
While the luxury market for short-term rentals is thriving, average investors are having a tougher time, she says. Even though short-term rentals can command rents that are up to four times that of long-term rentals, that’s not always enough to cover their new financing. A lot of them are dealing with construction delays that have them completing at a higher rate, says Ms. Steele.
“All these inquiries are coming in, and I can’t save them, the market is so saturated,” she says. “The delay in closing for the new construction was really damaging to their projections. The only way to make up for those numbers is short-term rentals. It’s a huge loss to go long term [rental],” she says. “At the moment, most people I speak with don’t want to sell, because they do see there will be some long-term gains but they realize there will be some short-term subsidies from their income to cover these properties, so it’s a little stressful.”
Short-term rental is defined as less than 30-day stays, which in many municipalities requires a business license. It also requires payment of the province’s speculation and vacancy tax. To avoid the tax, hosts must rent the units for a minimum of one-month increments for at least six months, according to the Ministry of Finance. The province also requires all short-term operators to collect PST at 8 per cent and municipal and regional district taxes at 3 per cent.
Ms. Steele has a client with a two-bedroom townhouse whose investor owner is looking at $5,500 in carrying costs, including the speculation and vacancy tax he will be required to pay on his vacation rental. There are other taxes, financing costs and utility bills. The start-up cost of furnishing and stocking the unit is around $52,000, she says.
In response to the new supply of short-term rental units, a lot of new operators are coming into the market, he says.
“I think we are going to see another surge of listings come on as one last kick at the can for these investors, to make it work.”
Murray Cox is founder of Inside Airbnb, a short-term rental analysis site that is mostly self-funded and does data analysis for academics, governments and community groups. Airbnb is the biggest platform, but there are others, including VRBO and HomeAway.
Mr. Cox, who is based in New York and has a tech background, has started collecting data on Canada as a whole.
In Vancouver, short-term rentals are only allowed if the owner lives within the residence, and is not allowed for a separate suite or laneway house. However, 82.6 per cent of Airbnb listings are currently posted as entire homes or apartments. More than 50 per cent of short-term rentals advertise entire homes, according to Inside Airbnb.
Short-term hosts can have multiple units using one license number within their principal residence, but are only allowed to accept one booking at a time, according to the City. There are hosts with multiple listings, according to Inside Airbnb, appearing to operate like businesses, both short term and longer term rentals.
Whether they are paying the speculation and vacancy tax is not known. BC’s Ministry of Finance said legislation is under way to offer better tools for local government to regulate the system.
Rentals of more than 30 days are allowed to advertise on vacation platforms, and they require licenses for each address. About 28 per cent of the listings in Vancouver are unlicensed, according to Inside Airbnb. Mr. Cox noticed Vancouver’s longer-term rentals doubled once regulations were brought in.
The problem with the 30-day minimum rentals allowed on these types of platforms is that they evade tenant protection laws, says Mr. Cox.
He said it also appears a lot of Vancouver hosts are reusing license numbers for different addresses. As an example, he found 16 different Airbnb listings that were using the same license number.
“The Canadian systems have some decent laws on the books, for example, Toronto. But there is still abuse of those laws that are taking place.”
The City of Vancouver said it’s issued 2,597 short-term rental business licenses so far this year and their data shows 3,524 active short-term listings.
Chief license inspector Sarah Hicks said in an e-mail that investigations are ongoing and they’ve issued more than 1,890 tickets to illegal operators and more than 200 cases have been referred to prosecution.
Ms. Steele sympathizes with both sides of the debate, those who need to make extra money to cover growing costs, and those who are seeking affordable housing.
She’s focusing on the luxury market because so many mansions sit empty “90 per cent of the year.”
“All of them are for personal use… they are sitting vacant. We can bring people in, stimulate the economy, and drive some interest to Kelowna. That’s my goal.”