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  • Victoria's new policy on short-term rentals


    Pamela Roth

    Unintended consequences of Airbnbs are leading to new measures to deal with the loss of housing stock.

     

    FOR $138 PER NIGHT, one can stay in a luxury two-bedroom condo in the heart of downtown Victoria. Located on Humboldt Street, the condo is within walking distance to a number of amenities and popular attractions. It’s also fully equipped with a concierge.

    But the condo is not a hotel; it’s a residential building where many residents no longer know their neighbour. Instead, they see a string of new faces passing through the halls each week, people arriving late at night, making noise, not knowing where to go, or the rules of the building. Many are fed up with living in one of the city’s many “ghost hotels.”

    “Living in the Downtown core, people always have safety and security issues and that’s kind of the impetus for people starting to question ‘why am I seeing strangers in and out of my building all the time?’” said Downtown resident Eric Ney, who’s part of a citizens coalition that’s trying to better regulate short-term rentals (STRs).

    He believes the vast majority of Downtown condo buildings have STRs operating in them—and this is borne out by websites advertising them. He notes that about half a dozen strata councils have now brought in bylaws that restrict the short-term use altogether. “Unless the strata council takes action to bring in bylaws to essentially make STRs illegal, operators are just going to go ahead and do that,” added Ney.

    5a4d3cff48b71_JanionBuildingDec232017.thumb.jpg.7f2f40695b979f68f72f53ca968f2b55.jpg

     The Janion, where nearly half of its 120 suites are used as short-term rentals

     

    CONDO BUILDINGS WERE ENCOURAGED DOWNTOWN to bring in more full-time residents who would presumably help maintain a healthy core. The City of Victoria allowed all buildings within the “transient zone” (areas allowing hotels, motels, vacation rentals and bed and breakfast accommodation) to host condos that could be rented out by their individual owners, likely never imagining the disruptive blossoming of a new vacation rental industry. With people able to rent out a suite for $165 per night, they can earn a substantial amount during the tourist season alone—often enough to out-price a year-round long-term renter.

    As a result, STRs have become a significant factor behind a rental vacancy rate that won’t budge from around 0.5 percent—the lowest in the country—despite the abundance of new developments built  over the past half a dozen years. Due to STRs, many Downtown condo units that might otherwise have been rented out to local residents sit empty most days of the year. A recent City of Victoria report states there are close to 1,500 unique listings of STRs, with the bulk of them located Downtown.

    In order to prevent precious long-term housing units from being gobbled up for brief stays, Victoria City council started looking at ways to regulate STRs. Last fall it finally took action when a new set of rules was approved that include prohibiting STRs for less than 30 days in transient zones and no longer allowing them in new Downtown developments.

    A grandfather clause stipulates that property owners who already legally operate STRs as a business will be allowed to continue, but will lose that status if they are not operating for a six-month period. The only new STRs that will be allowed will be within the principle residence of the owner—one or two bedrooms in houses or condos. All operators will also have to purchase a business licence.

    The next item of business to be decided is what the City of Victoria will charge STR operators for that business licence. City staff proposed a fee of $200 for a principal residence that rents out a bedroom—and $2,500 per year for a unit that is not one’s principal residence.

    Besides the fees, STR operators would have to comply with a list of operating requirements such as getting a letter of approval from the strata council. The framework also calls for an enforcement strategy that involves a third-party monitoring service to identify STR addresses and non-compliant operators. The City recently found that many aren’t following the rules by operating outside of transient accommodation zones.

    According to the staff report, the proposed fees were developed to recover the costs of administering the program (including the third-party monitoring), level the playing field between STR operators and traditional accommodation providers, and ensure operators pay a fee commensurate with revenue generated. But after considerable pushback from operators, officials are now collecting more data and considering alternative fee structures, including a flat fee that all STR operators would pay, regardless of the type of unit. (“The majority of feedback received was from STR operators or individuals employed in the industry,” states the staff report.)

    Councillor Ben Isitt introduced the motion of STR regulations at council, pointing out that “These buildings were built, approved in this chamber, with people believing they were going to be ordinary, residential condominium buildings…We’ve found these buildings have evolved into something very different.”

    Councillor Geoff Young has heard from a number of unhappy residents living in ghost hotels and can’t help but sympathize with them. He’d like to see the proposed business licence fees start low and escalate over the years.

    What council would really like to see, he noted, are changes in the provincial legislation regarding the classification of those units. Hotel rooms are classified as commercial while STR accommodation is classified as residential, he explained. It’s important because commercial users pay three times the property tax that residential users do.

    Besides providing greater fairness among hosts, new property tax regulations would be fairer to the City. As Young explained, “We’ve been losing real hotel rooms once paying commercial property tax rates…at the same time that this Airbnb use has been burgeoning. The Airbnbs are paying much lower taxes than the hotels and we would like to see a fair, even playing field with everybody who’s operating a hotel paying the same taxes.”

    Another big change council would like to see is the grandfathering done on a unit-by-unit basis instead of building-by-building. “If a unit continues to be used for STRs, that’s fine, but you can’t take other units in the same building that have been used for residential accommodation and transfer them into STRs,” said Young.

     

    KEN HANCOCK LIVES IN THE JANION BUILDING where nearly half of the 120 suites are used as STRs. But he likes it that way—it’s one of the reasons he made the purchase, noting it’s the same story for many property owners in the building. Most of them, he said, either live Up-Island or in Vancouver and purchased their property as a place to retire or stay whenever they come to Victoria.

    Besides being the strata council president, Hancock also works as a concierge for a select group of condo owners in the Janion to assist travellers coming and going from various suites. Sometimes he feels like he’s living in a hotel, but he knows most of his neighbours and loves meeting new people from around the world.

    As for the proposed $2,500 business licence fee that could soon be required to continue operating many of the STRs at the Janion, Hancock shakes his head. “You have a group of people who specifically bought, invested and set up these little micro businesses because they were legal. The zoning has been in place since 1994,” said Hancock, who believes most people will keep their place if they don’t want to pay the fee, but won’t use it for long-term rentals.

    “They specifically bought it because of the Downtown location and as a retreat from their regular home. It’s for their use much more than an investment. Everybody I deal with is quite happy to have some sort of regulation as the industry matures and that’s not a bad thing. It just needs to be recognized that these are, for the most part, micro businesses.”

    But for Eric Ney, the proposed rules are a good first step. He’s pleased to see that STR owners must get permission from the strata in order to get a business licence, but he’d also like to see the elimination of STRs in multi-dwelling buildings.

    A strata council, however, is not likely to be able to disallow STRs or put strong bylaws into place if a good portion of owners are engaged in the practice themselves—like those at the Union in Victoria’s Chinatown where about half of the 130 units are used as STRs.

    Johanna Merth has lived in the Union for three years and noticed at the last AGM that those who own multiple units in the building, but do not live there, are able to vote en masse on issues that impact permanent residents. One person who owns multiple units, but doesn’t live in the building, holds a position on strata, which doesn’t sit well with Merth.

    “They are voting on issues that may not affect them directly, but affect their business prospects. As a resident and owner in a building, that’s a problem. I think some people who run business operations can sometimes forget there are people who live there full time,” said Merth, who didn’t realize the impacts of STRs when she purchased her condo.

    “It’s brutal. It does affect the culture. When I look out at night, I just see a wall of black windows because it’s not peak season so people aren’t renting the units. This is altering the structure of our city.”

    What impact the City’s new regulations will have on long-term rental housing remains to be seen. But with an expected growth of 20,000 residents by 2041, the City of Victoria needs an additional 13,500 apartment units and 2,700 ground floor homes sooner than later (as per Victoria’s Official Community Plan). Privately-owned condos are an important source of housing, including rental housing—they represent almost 14 percent of the total rental units in Victoria.

    But the City is slowly making strides. Since Victoria’s Housing Strategy was approved in June, 25 action items to improve housing affordability have been achieved, leading to an increase in the number of rental and non-market housing units developed and retained in the City (590 rental units are now under construction). There are, however, still a number of issues left to tackle in order to get a grip on the growing housing crisis. STRs are just one piece of a complicated puzzle.

    In early 2018, council will be presented with options for business licence fees, along with the short-term rental business regulation bylaw and amendments to the zoning bylaw. The new rules would come into effect shortly after.

    A journalist since 2003, Pamela has spent the bulk of her career covering court and crime for various newspapers in western Canada, including five years at the Edmonton Sun. An avid traveller, Pamela also specializes in travel writing and recently published a true crime book called Deadmonton. 



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    STRs another Fairytale from Fantasyland

    Pamela Roth’s article on Victoria’s short-term rentals dilemma presents a balanced view of this controversial topic; however, it fails to consider why STRs appear to be exacerbating the housing crisis in every major city around the globe.

    The Context for our Tale

    The new internet-based, unregulated ‘sharing-economy’ business model lies at the heart of the issue. Few governments have been able to exercise their regulatory control or taxation authority over this online lodging-booking platform. The massive expansion of the deregulated global economy over the past two decades, proliferation of off-shore tax free-safe havens, and the rampant growth of investment in a highly speculative asset class such as real estate, has concentrated wealth in fewer and fewer hands; this has eliminated the possibility of earning the decent living required to put a roof over one’s head without assuming intolerable debt levels.

    Before Airbnb, (the premier “online marketplace and hospitality service” established in 2008), all bed-and-breakfast operators in the City of Victoria were required to obtain a commercial business license to operate as a lodging supplier; and, to pay appropriate taxes as hoteliers do. The disruptive digital technology home-sharing enterprise said their business model was simply an intermediary tool to link property owners willing to rent unused space to guests interested in alternative, if not cheaper accommodations, than those provided by hotels. At the crux of their argument is this: data on host properties and transactions is confidential information which cannot be shared with any regulatory agency. Consequently, if said authorities wish to exercise control over the home-sharing economy, they must assume the costs of regulating and monitoring the property owners and housing units listed.

    The convergence of a new technology offers the means to book temporary use of a room or a home offered by property owners to guests at a suitable price; this, together with the rapid growth of new high-end condos downtown, serves the interests of developers who sell the units as income-generators. And, prospective owners stand to benefit, especially those who seek a financial investment property and part-time personal use. To suggest that Council , who approved the downtown development permits over the past decade, were unaware that the new units were being used for this purpose, is at best a red-herring. Or, perhaps just another excuse, like the Johnson Street Bridge fiasco, to remind everyone of their incompetence.

    Victoria’s Spin on the Home-Sharing Tale

    For several years, senior city staff and Council have refused to obtain STR data by any credible third-party monitoring service. In fact, they’ve relied on a brief, cursory real estate development report by Vancouver-based Coriolis Consulting Corp. suggesting that STRs were an inconsequential factor in the housing market. These same parties had nothing to say about the City’s 3,450 unoccupied dwelling units which, according to the 2016 Census, were likely used on a short-term accommodation basis, and comprised 7% of the city’s total housing stock. No wonder one of Union Building condo owners was dismayed at the sight of “a wall of black windows…altering the structure of the City”.

    This was done to justify doing nothing to assess the potential negative impact on housing from other non-homesharing downtown condo owners, hotel operators, or renters who comprise 60 per cent of the City’s households—in a City with a near zero vacancy rate. Unlike many other cities facing STR regulatory issues, Victoria ignored the problem, and did not bother to conduct any extensive community-engagement surveys, public workshops, etc.

     All this took place while two Council members and the Mayor recused themselves from Council discussions to consider the matter, or listen to concerned citizens speak to the issue of noise and security concerns in buildings where STRs were operating. While few Councilors addressed these matters in public, the Mayor had no difficulty speaking as a panel member and featured speaker in a real estate investment network meeting held in early 2017 to promote real estate investment in the City, particularly short-term rental properties.

    There is no level playing field in this City when property ownership determines the entitlements and benefits in the real estate game – be it corporate or individual owners; while tenants simply don’t count. Almost 80% of the STR units are for entire residences; and more than half of all listings are operated by multi-unit commercial operators. These are from the much media-hyped, social-enterprise fairytale that was being spun about a Fernwood single-mother using her spare bedroom as a mortgage helper.

    There are more than 3,339 lodging units in the Inner Harbour and downtown area (Catalyst Consulting, July, 2017). When you add in the estimated 1,500 short-term rental listings to the mix, this means STRs represent 31 per cent of the total accommodation sector, whereas they comprise only 14 per cent of the total rental units in Victoria.

    Last year, 16,661 purpose-built rental apartments existed in this City, 361 more than in 2016 (CMHC Fall 2017 Market Rental Report). Currently 12,693 condo units exist in the City, 140 more than in 2016—most of the stock built over the past 15 years. The same CMHC report reveals that 25.6 per cent of the condo stock, or 3,253 units, are in a rental pool. What the report does not indicate is what proportion of these housing units are rented on a short-term versus a long-term basis.

    Judging from the presentations to Council by some higher-end lodging operators, there is a growing market for temporary accommodation: executives; contract employees; consultants working on major projects in the City; health care professionals on locums; foreign students; families awaiting completion of new home construction or renovations; respite care individuals, and winter snow-birds. Competition between diverse and expanding housing accommodation-user groups, favours the higher-profitability short-term guests over long-term tenants—many of whom are city workers, students, and modest-income retirees.

    Little exists to suggest that the City is serious about addressing the growing displacement of thousands of long-term tenant population; this, due to costly renovations, demolitions and replacement with condos, or the conversion of older hotel properties into owner-occupied units or high-end rentals. The City’s own Market Rental Revitalization Study is already earmarking 10,000 aging purpose-built rental units (more than 35 per cent of the City’s rental housing stock) for potential demolition or costly energy and seismic upgrades. Who will benefit from these renovated or replaced housing units? Visitors willing to pay premium short-term rental rates? Or long-term residents in need of affordable accommodation?

    Who Benefits from this Fairytale?

    Question—why is Council turning homes into micro-enterprise hotels, rather than providing much needed accommodation for those who live and work in this City?  Answer?— for developers, real estate investors, financial institutions, and building contractors who stand to reap the lion’s share of the booty from the booming housing economy, in which STRs play a starring role.

    Taxpayers are about to spend $500,000 a year to monitor about 800 short-term rental property owners and hosts who want the right to conduct business untaxed, without regard for neighbours, or the health, well-being and sustainability of the City in which they live and do business. Are these citizens entitled to more than their fair share of the pie? Should we support and subsidize their home-occupation business?

    Or, are we just the unwitting recipients of the so-called “unintended consequences” of elected officials and senior staff who will be long gone when the irreparable and harmful impacts of these ill-conceived plans and measures are felt by us all?

    “Semper Liber”, (Latin for “always free”), may be the motto of our royal fairytale city, but the proverbial “free lunch” is available only to those who own a piece of property in this island paradise of privilege.

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    Ms. Adams comment contains, in my view, some significant misinformation.  There is no indication from the census that the 3450 "unoccupied" units are in fact short term rentals, nor has any substantive proof been offered other than the author's own assertions. This is the most recent example of Ms. Adams claiming that this is the number of units that are effectively "empty" in the city of Victoria.  What she either willfully fails to inform the reader, or doesn't understand, is that the census definition of unoccupied includes occupants for whom the dwelling is not considered their permanent home, or "usual residence".  This includes student accommodation, and it is widely recognized that the vast majority of "unoccupied" dwellings are captured due to providing student accommodation as these student are counted in the census as resident of their home residence, regardless of their prolonged absence.  Given the lack of campus housing and the number of students that attend post secondary institutions in Victoria, this is a very reasonable conclusion to come to, as opposed to the "fairy tale" that 5% or more of the city's housing stock is simply sitting empty.

    Further the 1500 unit guess for the number of STRs conflates estimates between Greater Victoria and Victoria proper.  Considering that there are less than 30 buildings in the city proper that have the correct combination of zoning and bylaws to allow for legal STR operation, and that the total number of units in all of these properties combined are approximately 1500 it is easy to see that the numbers being used are both inaccurate and alarmist.  While it can be argued that there are many illegal STRs, the fact of the matter is that the city has had within it's power under current land use bylaws to stop such uses without the need for creating yet another city bureaucracy. 

    There are approximately 30,000 rental units in the city of Victoria proper.  There are over 3000 purpose built units being brought online now and through the next 24 months with more in the planning stages.  The provincial government has announced plans to allow for the building of on campus, purpose built student accommodation which will further relieve the pressure on our admittedly tight rental market.  Housing availability will not be the problem, rather it is one of affordability and frankly including STRs in that particular conversation has little relevance given the fact that the vast majority of STRs, were they made available for full time rentals, would be largely unaffordable.  Adding $1800-$4000 monthly rentals to our market does little to change the affordability spectrum.

    Given the nature of our tourist based economy, the forethought that previous councils had with respect to planning specific zones for which STRs are appropriate and the ongoing popular demand for accommodation outside traditional hotels we should be embracing local, legal, STRs.  They provide local employment and keep profits in the local economy rather than being sent to some multinational hotel chain head office.  A diverse and attractive accommodation sector is vital to the ongoing well being of our tourist economy.  It is my hope that attacks on legal and legitimate use of properties be stopped, or at the very least if they are to be debated that arguments revolve around facts.

     

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