Let’s Talk about Short Term Rentals

There have been many questions this week about the decision to opt-out of the short term rental legislation by council and I’m going to do my best to share my thoughts on the matter. Before we delve in, let me clear the air – the question has been asked about whether or not I own or have any partial ownership or financial stake in short-term rental properties which might have influenced my decision. So for the record, no, I do not own or have a financial stake in any short term rentals (STRs).

Why are we considering opting out of the STR legislation?

In December, Councillors Skakun and Klassen brought forward a notice of motion for council to consider opting out of Bill 35, the Short Term Rentals Accommodations Act. Staff prepared a report which you can read here at item D.11 and after much debate council directed staff to ask the province to opt-out of the STR legislation. Below I will highlight some of the factors that influenced my decision.

Vacancy Rates

In the staff report, it states that Prince George currently has a vacancy rate of 2.8% and we are ineligible from opting out. I questioned this data for a couple reasons, the main one being that I am very familiar with the CMHC Market Information Portal and understand its limitations as I use it for work as a Marketing Analyst and have used the data in this portal since 2015 to calculate the living wage for Prince George.

One of those limitations is that the CMHC Housing Survey only includes data from privately initiated structures with at least 3 rental units, which have been on the market for at least 3 months. Now, this automatically excludes single-family detached houses (17,995), movable dwellings (2,170), semi-detached houses (1,285), and apartment or flats in a duplex (2,305).

Essentially, right off the get-go, CMHC excludes a significant number of properties – 23,755 to be exact – from the Housing Survey which looks at things like market rents and vacancy rates. This is important because from our own Housing Needs Assessment, we can see that only 46% of renters are living in apartments meaning that 54% are living in dwellings CMHC does not consider in its survey data.

Now, let’s look further into the vacancy data. When we look at the vacancy rate for row/apartment, we can see it says the rate is 2.8 and has fallen from 3.7 in 2022. I automatically ask why the vacancy rate fell over 1% from the previous year.

Row housing is defined as “any building containing 3 or more rental units, all of which are ground oriented, side-by-side, with common walls dividing each rental unit. Owner-occupied units are not included in the rental building unit count. These row units in some centres are commonly referred to as townhouses.”

When we look at row housing, we can see that the 3 bedroom + category contained a vacancy rate of 1.8 in the following year and instead has ** listed for 2023 which is overall bringing down the row house vacancy rate from 1.9 to 0.5. The reasoning from CMHC is that the data is suppressed to protect confidentiality or the data is not statistically reliable. Given that it was listed in the previous year, I believe there to be a strong likelihood that the data is not reliable rather than being omitted due to confidentiality. We can also see from the Housing Needs Assessment that only 9% of renters are living in row housing.

To me, it is reasonable to exclude the row house vacancy rate due to the low number of renters living in this housing type as well as the 3 bedroom rate being omitted from the data.

What this leaves us with the the apartment vacancy rate of 3.0 which means if the row housing is omitted, council does have the authority to make the decision on whether or not we can opt-out this year of the STR legislation.

Affordability

There are a significant number of factors that impact home ownership affordability. Housing stock availability certainly plays a part but there are other factors that come to mind:

• Your Total Debt Servicing (TDS) ratio. TDS is your total debt obligations divided by your total income in the form of a per cent and the industry standard cutoff is 42%. If you have any other debts – a car loan, student loan, debt consolidation loan, etc. – this is going to impact your TDS and if it’s over 42% you will not get approved by a lender.
• The Stress Test. The stress test was implemented in 2018 and applies to anyone purchasing a home with less than a 20% down payment. The stress test ensures that you can still make mortgage payments should rates change. Basically, you have to get approved at either the minimum qualifying mortgage rate of 5.25 per cent, or their contract rate plus two percentage points, whichever is higher.
• Rates. The Bank of Canada has increased rates to slow inflation, this is resulting in higher interest rates sitting currently around 5%. With the stress test, this means that individuals need to get approved at around 7%.
• Amortization period. If you have less than a 20% down payment, the maximum amortization period for an insured mortgage is 25 years. In the market, 40 year mortgages are available to those with more than 20% down payment; however, those with lesser down payments are required to pay their homes off almost twice as fast as those who have a greater then 20% down payment. This is meant to regulate $1M+ mortgages and I have questioned why there isn’t a threshold in place for insured mortgages under $1M. The answer is that if policies were to change individuals would be taking on more debt and interest in the long term. My response was shouldn’t that be an individuals choice?

Does more housing stock equal affordability?

I was recently at the UBCM Housing Summit and a panelist said: “It’s just basic economics, the more stock we add, the more affordable housing will become.” There are so many other factors contributing to affordability that I have to ask the question if this is actually true?

The Province seems to think so and in fact, they hired Jens von Bergmann of MountainMath Software & Analytics in addition to UBC Sauder and Sociology staff as well as a professional from Terra Housing, to provide an analysis on how adding density will achieve affordability. One line that stood out to me was this: “The additional 44,000 to 54,000 net growth in dwellings over 5 years estimated by our model would result in 6% to 12% lower prices and rents than what they would have been without the provincial legislation.”

The issue I have with this is that the opposite of ‘adding density betters affordability’ is currently happening in Victoria. They have implemented zoning that allows fourplexes on single family lots and up to twelve-plexes on corner lots. They’ve added a great deal of density and since the new zoning implementation, their vacancy rates dropped 0.01 while their rents increased by over $200 per unit since the previous reporting period.

Why should we keep Short Term Rentals?

Based on the information from PG Realtors, there are 259 active Airbnb’s in Prince George. Searching actively on Airbnb and removing principle residences, about another hundred residents are excluded meaning overall, we are looking at roughly 150 STR properties likely being impacted. 150 of 31,793 dwellings according to the most recent Statistics Canada Census data. This is 0.4% of our total dwelling count. Long term rentals are still an attractive investment option and eliminating the 0.4 STRs in our community converting them to long term rentals is not going to influence the market enough to change market rental rates and immediately make things more affordable.

Health Considerations

In 2021, I chaired a panel at NCLGA with Cathy Ulrich, then CEO of Northern Health. Housing availability was among the most challenging barrier to recruitment for health professionals. According to a CTV article, “in 2022 [Northern Health] has spent $37.7 million on [externally contracted] agency nurses, technicians and other allied healthcare workers. The five-year total is at least $105 million. Every other health authority combined spent at least $102 million in that time on private staffing to keep public health-care facilities running.”

We know that Northern Health is spending more than all the other health authorities combined in order to provide basic care and the reality is that many of these health professionals do utilize short-term rentals. We also have a number of individuals from outside of Prince George who come here to give birth, receive cancer treatment, utilize hospice services to name a few services because not all of these critical health services are available in all communities. Short term rentals emerged in the market because they met a demand – a demand that still exists today and eliminating them will have consequences on rural, remote, and northern communities.

Tourism Revenue

I’ve seen some comments that STRs do not contribute to Tourism Prince George through the MRDT hotel tax and I want to comment that council has asked Tourism PG this question. CEO Colin Carson has confirmed that STRs do contribute to the MRDT and infact in their 2024 budget we do see their revenue increasing by $250,000. So not only are these properties contributing by paying property taxes, they are also contributing to marketing initiatives and supporting a great non-profit.

Conclusion

You might not agree with my decision to support the opt-out of the Short Term Rental Legislation and that is okay. Disagreement is part of a healthy democratic society. Whether or not you agree, I hope that at least you can better understand my reasoning for coming to this decision. Regardless of where you stand, know that this decision still needs to be approved by the Province. They might not agree with the logic of excluding row housing which puts us back to a 2.8% vacancy rate. They might agree with us and approve the opt-out, in which case we will have to have this debate annually as long as we have a representative vacancy rate above 3%. And if the vacancy rate does fall below 3%, it will be 2 years before council can reconsider.

Do you have questions or comments about STRs or perhaps there’s additional information you think I should consider. Send it my way. Thanks for reading!