Rent prices continue to surge across the country begging the question, “what effect and how much are temporary rentals like AirBnB driving up the cost of rent, and even driving up the cost of housing?
Conference Board of Canada’s Findings
The Conference Board of Canada looked for a link between the two but says it found no compelling evidence Airbnb activity is causing rents to go up. Tony Bonen, director of Economic Research at the Conference Board of Canada reports the conference board did a study on exactly what the impact of AirBnB has been. “We’ve been facing for five maybe even 10 years and over that time not just housing prices but now rent prices are going up very fast and we wanted to understand how Airbnb activity was contributing to that and specifically to extend could we say Airbnb activities causing rents to increase.”
There seemingly is a strong correlation between the impact of Airbnb on a community and rents in that neighbourhood. However, Bonen reports, “Using a unique set of data from Airbnb so this is the record level information of the actual units they rent out through their website, we were able to study patterns of rental prices and also activity at a neighborhood level and we started controlling for that really local level impact we weren’t able to find any discernible impact from Airbnb itself”
No impact from AirBnb on rent prices, maybe $10 or so, but nothing meaningful.
Bonen says, “We were quite surprised by the results. We really expected to find some kind of causal relationship there. So when we first got these results, we threw the kitchen sink at the data. We tried everything and in some cases we tried to assume, for example, that Airbnb activity was at the 95th percentile across the country, across all 330 neighborhoods that we were studying. And when you start treating the data in this way, you can start to see some impact. But even in those cases, the impacts are pretty minimal in terms of the magnitude on the overall increase in in rental prices”.
In the Conference Board of Canada study, the focus was on ‘purpose built’ rentals, rather than rentals from condos for example. What’s interesting, is that most people think the majority of rentals in Toronto on in condominiums, but the marjoity of rentals in Toronto are still found in ‘purpose build’ rental units. Of new rental units coming on the market, the majority are from condominiums, but their price points are much higher as the units themselves are in much nicer buildings with far better amenities.
Despite focusing on the data from ‘purpose built’ rentals, Bonen remarks, “Purpose built rentals was the segment of the market and focused on. And we had to do that because of the available data. We used in this case for rental prices, CMHC’s rental price survey that they do annually, a very robust set of data that allowed us to drill down to that neighborhood level that we. Wanted to focus on. But it is limited because it doesn’t cover the entire rental market. But in our view, this should not make a major impact on our findings because any impact that you see on one segment of the rental market should be transferring over to the other segments of the rental market even though it might be hitting the rented condos first, you should expect that pricing back to sort of even out across the entire market. “ There’s no doubt that a lot of skepticism around this at it doesn’t seem logical that, given the amount of short term rentals available, that short term rentals wouldn’t have an impact on the prices of rentals in the larger market.
Other Factors are Driving Up Rents
However, there are many factors causing the cost of rent to go higher. Bonen reports, “there’s been a lot of research done on Airbnb activity and the sort of clear correlation between activity and rental price increases leads one to assume that rents are being driven up because of Airbnb. But of course, what we’re trying to do is say, well, what are the other factors like, is the neighborhood becoming more desirable and that’s increasing both rents or Airbnb activity or of course the causal connection can run the other way. Rents are going up and that it compels people to start finding units that they can rent out as Airbnbs because it’s a better investment for them.”
Other researchers have reported similar findings in terms of the impact of short term rentals on the price of rentals in the broader market.
Some jurisdictions have put in place policies that limit the participation of short-term rentals in their community. In regard to the impact of such policies, Bonen reports, “we wanted to see what was happening when Airbnb first entered a city in a certain neighborhood and then what happened after controls or restrictions on Airbnb rentals were put in place. Not surprisingly, we don’t see any impact on price, just as you don’t see an impact on price when Airbnb enters when Airbnb. Activity is is drawn down because of regulations. Prices aren’t affected, so it’s a correlated corollary of our initial funding.”
The number of units does go down when regulations are put in place, but prices themselves are not impact in a meaningful way.
What this suggest is that prices are sticky. Once a rent price is set, it is unlikely to go down. Rent prices are not strongly responsive to changes in inventory as real estate itself is a long term investment and conditions have to alter meaningfully over a long period of time of price adjustments to occur.
Jurisdictional restriction policies to prevent inventory from being consumed by temporary rentals providing more opportunities for longer-term rentals, but they do little to impact rent prices.
