The Good and Bad about Vancouver Legalizing Airbnb

Photo: Florence Bellanastasia

Photo: Florence Bellanastasia

It seems like the battle between Airbnb and the Vancouver City Council is finally winding down. 

City councillors are currently discussing a proposal that would let homeowners purchase a $49 annual short-term rental license for their property, legalizing the short-term rentals (less than 30 days at a time) offered by online platforms. The regulation also includes a $54 one-time activation fee and a requirement for Airbnb and friends to collect a 3% transaction on the city’s behalf. The platform itself collects around 10% of total booking revenue.

Additionally, people would only be allowed to rent out their principal homes— condos and cottages that they also own are barred from rentals. Mayor Gregor Robertson claims that this would legalize around 70% of current “entire unit” and nearly 100% of “private room” listings in the city. 

“Short-term rentals have gobbled up a lot of the long-term rental supply. Right now there’s not enough rental housing to keep the city functioning as it should," said Robertson in an announcement.

Vancouver is simply a hard place to live — with a demanding housing market and a 0.8% rental vacancy rate, it desperately needs more rental units. The new regulations are projected to open up at least 1,000 units for Vancouver’s long-term rental supply that are currently being used for short-term rentals.

Airbnb is understandably happy about the city’s announcement, welcoming “the move toward regulating home sharing.” But despite the path toward legalization, this leaves the city with more questions about housing than answers moving forward.

The current situation

With a $31 billion market cap and 50 million served guests since 2008, Airbnb is the number one global threat to the hotel industry today. As the most popular P2P marketplace around the world for people looking for accommodations, it’s also the second-most valuable startup in America behind a certain troubled ride-sharing company

The main appeal of Airbnb? The marketplace allows people to earn additional income through their homes, while letting guests experience the local culture of their host’s neighbourhood. It’s usually a lot cheaper than a hotel room as well.

Although it has exploded in popularity, the platform currently operates by disregarding the municipal laws and qualifications required to do local business for many cities. The responsibility of obtaining the required business licenses and ensuring the safety of guests currently goes to people listing their properties rather than Airbnb itself. 

Though its value proposition of staying in a local citizen’s home is widely different from the normalized experience at a hotel, both options satisfy the overarching goal of supplying temporary accommodations for people, and therefore compete for the same customers. The same principles that allow the hotel industry to operate should be similarly honoured by those offering short-term rentals.

This also leads to another problem for lawmakers— how are you going to fairly tax Airbnb like its competitors, and how are you going to tax and regulate the hosts?

So far, there’s been varying degrees of success with legislation. In San Francisco where Airbnb is already “legal”, only 26% of hosts have successfully registered with the City Planning Department since 2014. On the other side of the Pacific Ocean is Amsterdam, where lawmakers and hosts have peacefully agreed for the latter to pay taxes like hotels since 2013, while not requiring them to hold any liquor licenses and kitchen inspections.

Vancouver's approach to regulation shares similarities with Toronto’s proposed annual fee between $40 and $150 for Airbnb hosts. Toronto defines a “short-term rental” as one that’s fewer than 28 days in a row, and both cities join a group that includes New York City, Philadelphia, Portland, and San Francisco (among more) that limit short-term rentals to one principal residence.

Hosts in Vancouver also don’t have to worry about a 10% tax on short-term rental income, a regulation that was recently passed in Toronto. The income that a host earns is already taxable, and the short-term rental tax goes on top of that afterwards. Toronto also plans to propose a friendlier 4% tax on hotels.

So far, Quebec is the only province in Canada that has legalized short-term rentals, passing legislation in April 2016. They tackled the situation with a stricter approach, requiring hosts to obtain a $250 permit, pay a nightly hotel tax and have at least $2 million in insurance before they can advertise their services.  

Net gain or net loss?

Why does Vancouver want to legalize Airbnb anyway?

Here’s the positive.

Low rental vacancies and the housing crisis aside, there’s definitely some economic impact that it provides to Vancouver. An Airbnb-commissioned study published in late 2016 estimated that the marketplace contributed around $400 million of economic activity to the city. Between 2015–16, nearly 267,000 guests stayed for a total of 1.2 million nights in Vancouver. 

Hosts collectively earned $71 million in income at an average of $60 per night. Additionally, the study estimated that a total of 9100 full-time jobs and $22 million in taxes were generated by Airbnb throughout that year. 

Vancouver tourists would benefit the greatest out of Airbnb's legalization in the city, with the platform responsible for 30% of all tourist accommodations in 2015-16. Another late 2016 study by three American professors notes that its greatest impact is its ability to reduce the pricing power of hotels —  the peer-to-peer aspect of rental platforms allows new hosts to increase the supply and instantaneously respond to demand. This effect would be most prevalent in times of high-demand like the annual Vancouver Sun Run and TED Talks conference in April. Even if you don't plan on using Airbnb, this is a positive benefit as hotels can't charge the same rates that they could've before.

"Airbnb is effectively Vancouver's largest hotel." - Gregor Robertson

And the idea of only regulating short-term rentals on principal residences? It turns out that most Vancouverites are already following the law… sort of. Out of the 5000+ Airbnb hosts in the city, more than 80% are sharing their primary residence, at an average of 4–5 nights per month. Of course, this metric doesn’t consider if they’re also renting out secondary residences that they own, and just that they happen to be offering the home they currently live in.

Freeing up 1,000 long-term rental units is pretty neat as well.

The city council recognizes the opportunity that Airbnb provides for homeowners to be entrepreneurial, tourists to experience a unique taste of Vancouver, and even locals to have a convenient place to stay after a wild night downtown. The average rent for a two-bedroom unit here is an unmatched $3,150, and some hosts need that extra income just to continue living in the city.

If you’re here for a good time and not a long time, this is great! 

But if you’re a resident or aspiring to be one? It hasn’t been the same story. Why is rent $3,150 in the first place? What the 2016 study didn’t consider was Airbnb’s housing impact on people who want to stay and grow in the area. 

There’s one finding in the study that undermines the claim of contributing $400 million of economic activity to Vancouver: 93% of people would’ve still traveled to Vancouver if Airbnb wasn’t there. Only 7% of that — around $28 million — was its actual impact. The remaining $372 million would’ve been absorbed by hotels regardless without flowing into the housing market, putting upward pressure on rent and pricing people out of the city. 

UVic business professor Brock Smith argues that if the platform didn’t exist or was illegal, short-term rentals would still live through mediums like Craigslist or Kijiji. Fair point, but their user experience and facilitation are miles behind Airbnb, and it probably wouldn't gain the same traction over there. 

Another thing to consider is how legalizing Airbnb will affect the locals in Vancouver's neighbourhoods. Seeing new people every week in your apartment building doesn't really give you a chance to meet and know your neighbours in the community. Some of the guests can be straight up annoying too, and there's not much you can do about it since you know they're leaving in a few days.

Getting back to the point of it affecting the housing market — is a $49 annual fee enough to account for the side effects of legalizing Airbnb? How effective will the regulation even be in stopping rentals outside of primary residences and ensuring fair competition with hotels?

The track record for other cities hasn't been so amazing. San Francisco has only reached a 26% compliance rate with hosts after almost three years of legalization. Meanwhile, Quebec's rate is less than 5% after a year of implementing its proposed rules. There's a good chance that those freed up 1,000 units won't be coming anytime soon, secondary residences will continue to be rented, and short-term rental profits by tourists will still be more attractive than citizens paying a monthly rent. It's not that hard to break the rules.

The positives seem to go to tourists and hosts, while locals carry the burden of the negative side effects. Although Airbnb has contributed to the housing affordability crisis, the hosts don't have much reason to stray from the status quo either.

What now?

At the end of the day, Airbnb is just a platform on a website. it has no employees or properties in Vancouver, the citizens who want to host are the only ones paying taxes, and it’s playing an impactful role on an already-tight housing market. The situation is complicated, and we’re already living in Canada's unhappiest city  — give us a break!

The Vancouver City Council wants your opinion on its proposed regulations for its public hearing in fall 2017 — more details can be found on its official short-term rental page.

If things go according to plan, Vancouver will legalize Airbnb by April 2018. After a long fight, the platform might have finally found a place to stay.

Thank you to Hostfully for featuring this!

The ethics of Airbnb was the subject of my Business Ethics research paper where I first explored the issues surrounding the platform. DISCLAIMER: I personally use and love the platform. It's been interesting to see the legal and social implications of having Airbnb's services in Vancouver, and what it means for those who want to live in the city for the long-term (myself included... eventually).