The impact of short-term rental changes on the overall housing market is a complex issue influenced by various factors, ranging from government policies to market behaviors. Recent regulatory adjustments targeting short-term rental activities have stirred significant interest and concern among stakeholders, particularly in the real estate sector. This post explores key barriers to policy effectiveness and anticipates how these changes might shape real estate dynamics in the near future.

There are many barriers to the effectiveness of this policy change:

Rapid Change:

The federal and provincial government has implemented so many changes in such a short period of time that us realtors are having a hard time keeping up. I don’t even know how the public would even keep pace, of those tasked at knowing the changes are struggling to do so.

Lack of Enforcement:

The rental restrictions are to be enforced by the RCMP with enforcement measures taking place later in the year. While the restrictions are effect, they don’t actually affect anyone yet because nobody is enforcing them.

Loopholes:

The rule prohibits short-term rentals but does not prohibit people from offering a long-term rental, with an early cancellation clause. Also, the rules cannot prohibit one from offering a place to stay for associates for free so one can simply claim that the property is provided to house guests for free.

Difficulty of Monitoring

As a person who used to run an illegal short-term rental, I’m painfully away of how easy it is to get away with. All we did was fail to advertise our address. Upon booking we notified all of our renters that it was an illegal rental and to claim they were visiting family if asked. We installed an electronic key lock for easy access and asked them to park down the road. When it comes to condo buildings, most buzzer systems go to a homeowner’s cell phone, a numeric keypad can be put on the front door.

To answer your question specifically it will affect real estate in the following ways:

Slowing Pre-Sales

It’s been my experience that property owners when hit with unenforceable rules tend not to listen. For this reason, we likely won’t see a big sell off in the resale market yet. On the other hand, people have a habit of halting the purchase of potentially unprofitable investments. Because of this it will slow presales of properties for those wanting to purchase an investment where the numbers only made sense if it was a short-term rental.

Trickle Down Price Declines

This will squeeze the higher end sector of the investment market, which will drive those prices down. Since the majority of luxury short term rentals are condos, this will work to push down prices in luxury condo presale market. Since no market is an island, declines in the higher end market will cause those property prices to intersect with the non-luxury market, pushing down those prices. It’s been my experience that high rise condo presales in transit-oriented areas tend to be more resilient with prices. So, we should expect to see a slowdown in pre-sales of wood frame buildings outside of transit oriented corridors.

Changes in Short-term Rental Systems

The most popular platforms for short-term rentals include VRBO and Air B n B. The government has gotten involved and began to regulate these platforms. It would make sense that users move onto a less regulated platform that allows an owner to rent without government oversight.

Less Taxes Paid?

If short-term rental operators are going to continue to rent the spaces out but are aware of the rule changes, they’ll likely hide the income to avoid being caught. Short-term rental operators do so by obtaining a new bank account in a 3^rd party’s name. This tends to indicate that the government will be collecting less taxes on the income.

Conclusion

It’s been my experience that property investors tend to be on the higher end in terms of income, education, creative problem-solving skills, and intelligence. They aren’t the sort to shy away from a small rule change. Because of this I don’t see a mass panic happening. We’ll see a slight decline in presale prices and slight uptick in rental sales.

On Another Note

It’s more likely that the recent increases in mortgage rates will have a greater impact on sales of investment properties and will likely be incorrectly attributed as a benefit of the implementation of this legislation. As fixed term mortgages come up for renewal, many property owners with long-term tenants are finding that their rentals are no longer sustainable. This is because of the lack of allowable rental price increases over Covid, creating unsustainably low rental rates for the long-term tenants. Since you cannot evict a tenant for no reason the property owners are opting to sell the properties. This is being compounded by the fact that many property owners refinanced their rental properties to keep up with the cost of living amidst an backdrop of increasing inflation and stagnating wage growth.