The honeymoon period for short-term rental (STR) options such as Airbnb and VRBO in Alberta appears to be coming to an end. What were once considered to be great (and more affordable) options for temporary residences for group vacationers, those on longer work trips, and those in need of a place to stay while they transition residences, are now being recognized as a major disruption to the housing market in Canada and the cause of skyrocketing rental costs.
A 2020 study published by the Canadian Mortgage and Housing Corporation suggests the financial incentives of owning an Airbnb (and the like) are leading to more long-term housing being converted into short-term. The study, which is titled “Impact of Short-term Rentals,” has made a number of notable discoveries, including that STRs in Canada are primarily run by large commercial operations, not private individuals. These operations can rent many units for lower prices than individuals, making profit through volume and not high prices. In addition, approximately 31,000 homes have been taken off the long-term market in Canada thanks to STRs.
An Oct. 16 Global News article points out that short-term rentals have already made an impact on Calgary’s rental market, which is becoming increasingly more competitive and expensive. Homes are built under the assumption that they will house families or individuals for a long period of time – not to be used like hotels.
An October rent report puts rent for the average one-bedroom apartment in Calgary at around $1,730 a month, a 13.2% year-over-year increase. The average two-bedroom apartment is $2,182 a month, a 13.6% increase year-over-year.
As they continue to lose business to Airbnbs, hotel associations are starting to lobby for measures against the effects of short-term rentals, says a recent Edmonton Journal article. The Alberta Hotel and Lodging Association (AHLA) is asking the city for stricter regulations on short-term rentals and are supporting a council proposal to introduce more rigorous guidelines to address the city’s housing crisis.
“Instead of being used to house people who live and work in Edmonton, these homes are being rented out on a nightly basis to create wealth by renting residential homes and condominiums on a commercial basis,” the AHLA said in a news release. As a result, there has been a loss of long-term affordable housing stock, resulting in higher rental rates, the association said.
The ALHA also warns that home-sharing has created a new class of investment by converting residential units into “ghost hotels,” which are typically condo units rented by tenants who surreptitiously sublet them on short-term rental portals like Airbnb. As renters come and go, disturbing actual residents with noise and mess, those running the Airbnb are avoiding the normal costs of doing business and creating additional demands on municipal resources like police, waste removal, and bylaw enforcement. Unfortunately, regular taxpayers end up subsidizing these businesses, which are only paying residential property taxes on what is actually a commercial enterprise.
Business license requirements start January 1, 2024
The City of Calgary is hoping to begin combatting the ghost hotel scourge on Jan. 1, 2024, when new business licence requirements for short-term rentals will be rolled out.
“The changes to the business licence requirements strengthens the accountability of short-term rental hosts and property owners, reduces negative impacts on the community, and enhances the safety of guests,” says the City of Calgary website.
Some key changes include the need for the following:
- Proof of ownership of the dwelling unit or written owner consent
- If in a condo, written proof from the condo board that Short Term Rentals are permitted is required
- Licence Inspector review
- Annual fire inspections done by Calgary Fire Department will be required to ensure compliance with all life safety requirements
- Proof of insurance indicating the location is operating as a business
The last point is of utmost importance, as operators of a short-term rental must contact their insurance broker or provider to ensure they are properly covered for running a business. More than likely, small-business insurance will be recommended. Be sure to inquire about the coverage limits for your property, what kind of coverage the contents of your home will receive (we strongly recommend replacement cost insurance), and how much liability insurance will be included.
Ask an insurance broker first
If you are looking for advice regarding business insurance in Alberta, don’t hesitate to contact our knowledgeable and courteous professionals at Lane’s Insurance. Our brokers have decades of experience in the business insurance world and know the right questions to ask in order to get you the best coverage available at the lowest price. We work for our clients, not for the insurance companies, so you can be sure you’re getting impartial advice that protects your best interests. Contact us at our Calgary, Edmonton, Banff and Alberta offices.