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Amid all the bad news surrounding the COVID-19 pandemic, there might be something of a silver lining for renters and homebuyers in Canada’s priciest cities: When the lockdown ends, they may find themselves in a more affordable housing market.
And if it happens, it will be in no small part thanks to the sudden flame-out of Airbnb, whose hosts have seen a collapse in revenue as global tourism ground to a halt in the past few months.
Airbnb’s situation right now is about as dire as it could be. Amid the viral outbreak, travelers are afraid to stay in strangers’ homes. Tenants in condo and apartment buildings don’t want travelers coming and going, and some buildings are moving to ban Airbnb listings. Most profoundly, Ontario and Quebec have temporarily banned short-term rentals, the core of Airbnb’s business.
Watch: What’s happening to Canada’s housing market in the pandemic? Story continues below.
But even before the pandemic hit, changing attitudes and changing rules meant Airbnb owners were facing a much harsher new reality.
One major earthquake for the vacation rental platform came in November, when a new Toronto by-law came into effect, forbidding homeowners from renting out any properties on Airbnb except for their primary residence or rooms in a primary residence.
That rule ― very similar to one that Vancouver enacted in 2018 ― was meant to put an end to the phenomenon of large property owners buying entire chunks of condo buildings and renting the units out through Airbnb. Affordable housing advocates have argued for years that this practice drove up housing costs for residents and led to the creation of condo tower “ghost hotels.”
The by-law change came and went with only a little media attention, but its meaning for Airbnb in Canada is seismic; it changes the business entirely. According to data from consultancy Host Compliance, these “ghost hotel” operators accounted for 30 per cent of the homes listed on Airbnb, but 80 per cent of the company’s revenue. Even before COVID-19, Airbnb was facing a potential revenue collapse in some of Canada’s largest markets.
A sudden boom in furnished apartments
The new rule seems to have had an immediate impact. Toronto saw a 29-per-cent spike in the number of furnished, long-term apartment rentals available in the first three months of this year, according to real estate consultancy Urbanation, which sees this as a sign that Airbnb owners are shifting to long-term rentals ― though that was largely before the impact of the pandemic was felt.
Others believe Airbnb hosts are more likely to sell their units instead.
“They’re not going to hold on to it for the rental market,” said Diana Petramala, a senior researcher at Ryerson University’s Centre for Urban Research and Land Development.
Short-term rentals bring in far more revenue than long-term rentals, so renting out an apartment on a one-year lease is “a less attractive investment to hold on to,” she told HuffPost Canada. That’s especially true if you’re one of the many homebuyers using Airbnb income to cover a large mortgage. Rent in the apartment market might not be enough to cover that monthly payment.
“So if you can sell (those units) at a really high price why not sell them? More will end up in the sale supply than in the long-term (rental) market,” Petramala predicted.
She noted that the City of Toronto saw a more than 8-per-cent increase in listings of homes for sale in March, while the region’s suburban cities ― where Airbnb listings are few and far between ― saw virtually no increase.
It all amounts to a sudden injection of new housing supply ― at a time when demand is drying up because of an economic crisis. That will put downward pressure on housing prices, Petramala predicted.
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How much could this help buyers and renters?
It’s hard to predict exactly, especially given all the other economic upheavals taking place right now, but we have data to give us an idea of the scale of things.
A study from housing advocacy group Fairbnb estimated earlier this year that the by-law the city enacted last year would result in 6,500 homes being added to Toronto’s housing supply, if the rule was fully enforced. If they all arrived at once, it would more than double the number of active home listings to choose from.
A 2018 study in the U.S. found that a 10-per-cent jump in Airbnb listings in an area increased rents by 0.4 per cent. If that dynamic reversed itself, a collapse in Airbnb listings could mean several percentage points off average rent.
But even if it means more affordable housing, some question whether Airbnb’s decline is a good thing. Scott Chatford, CEO of analytics firm AirDNA, argues that in a time of economic crisis, many people could generate additional income by renting out a second property or a room in their home on Airbnb.
“That income stream is a lot more attractive (now) for many people, so we think there’s likely to be more supply added to Airbnb,” he told HuffPost.
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It’s for this reason that he believes restrictions like the ones in Toronto and Vancouver “will be useless.” Given all the newly unemployed people, cities will be open to “compromises” as to how people make money on Airbnb, he predicted.
“Airbnb is an economic engine and economic activity will be the new topic of conversation.”
And it seems these regulations were only partly effective even before the crisis. According to a CBC News report, the rule limiting Airbnb to principal residences is frequently ignored in Vancouver, where the city has apparently done little to enforce it.
While Shatford is confident Airbnb will survive this crisis, he says its survival “is totally dependent on people leaving their homes and traveling again.”
How long that will take ― and how long it will be before people are comfortable again staying in a stranger’s home ― is anyone’s guess.
Can you spare $2 billion?
In the meantime, Airbnb is in a struggle for survival. At the start of this year, it was on its way to what would likely have been a very successful debut on the stock market; now the company has found itself having to borrow US$2 billion (and possibly more) from private equity firms at eye-watering interest rates. It will be paying more than 10 per cent on the first billion, and some 8 per cent on the second.
It has also found itself in a conflict with its hosts. When the pandemic hit and booking cancellations spiked, Airbnb overrode its hosts’ cancellation policies and offered refunds to travellers. That infuriated the hosts, and the company had to quickly announce a US$250-million bailout fund to cover the hosts’ lost bookings ― but only up to 25 per cent.
Airbnb is also trying to keep itself looking good in the public eye through all this, announcing it will provide up to 100,000 unused Airbnb properties as housing for COVID-19 first responders, either for free or at subsidized rates.
And Shatford says many Airbnb hosts will likely hang in there to see how the summer turns out.
“There is still hope that people are going to be able to salvage their business by end of summer. But if people aren’t able to pay their mortgages in August, then you might see people giving up hope.”
For many people struggling with rising housing costs in Canada’s priciest cities, the moment Airbnb owners give up hope might be the moment they can start hoping once again.