June 10, 2023

“Airbnbbust”? Why Canada’s short-term rental hosts face a harsh winter – National | Globalnews.ca

When Tamara Saeed and her husband were looking for a way to save for their children’s education a few years ago, the allure of Airbnb caught their attention.

The family bought a cabin near Grand Bend, Ont., in late 2019 and plans to host the property on a short-term rental platform. They almost second-guessed the move when the COVID-19 pandemic hit, but the waves of Canadians trying to escape the city during the lockdown turned out to be a boon for the cabin’s new owners.

“It’s been great. I honestly like hosting, it’s just a great way to help people explore an area they wouldn’t otherwise have access to. Not everyone can own a cabin,” Saeed tells Global News in an interview.

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He recently doubled down and bought another cabin in Selkirk, Ont. and has also published it on short-term rental sites such as Airbnb and Vrbo.

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But now, with bookings slowing heading into the holidays, mortgage costs rising and a potential recession looming, she’s wondering if she’ll have to sell her rental.

“It was a great idea and I think it still is. But the fact is that things have changed, says Saeed.

He cites new municipal taxes and rising Bank of Canada interest rates as hurting business and earnings for his cottage properties.

Inflation also reduces income due to the higher costs of cleaners and maintenance staff dependent on the cottage industry.

“We are concerned that because of all the costs, keeping these properties may not be as feasible. We hope this is not the case,” says Saeed.

Sitting around the campfire

Tamara Saeed’s family uses her cottage property when it is not rented out to a hosting service like Airbnb.


But it may not be today’s situation that could decide his future in the short-term rental game.

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While business always slows down after the busy summer months, Saeed says bookings have slowed more so far this fall.

Mortgage costs for owners of properties for short-term rentals such as Airbnb are rising sharply at a time when travel demand is forecast to slow ahead of the dreaded recession, according to experts.

“It’s a bit scarier,” says Saeed.

“We’re just thinking about the future. If this trend continues, is this something we can just continue to do?”

Saeed is not alone in worrying about the headwinds of short-term rentals.

The term “Airbnbbust” became popular online recently with Twitter and Facebook posts where hosts are complaining about declining occupancy rates.

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Airbnb has reported strong revenue growth for much of the year as consumers rush back to travel after the lifting of COVID-19 restrictions.

But the San Francisco-based company’s share price took a hit last week – despite a record result – as it missed analysts’ expectations and said it expected booking growth to slow during the holidays amid high global inflation.

Competitors Expedia, which owns short-term rental platform Vrbo, and Bookings.com each said in filings last week that near-term “uncertainty” meant they could not accurately predict how many bookings they would see during the fall.

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Conference Board of Canada economist Kiefer Van Mulligen tells Global News that “travel demand will decline” in the coming months as high inflation and interest rates eat away at consumer spending power and fears of job losses on the horizon push households. save rather than waste.

“It’s important for the recovery of the tourism industry. If people don’t spend as much money, it’s a more gradual way back to pre-pandemic levels,” he says.

In some Canadian cities, short-term rental hosts are already reporting fewer bookings on their calendars compared to this time last year, according to one analysis.

Data provided to Global News by AirDNA, a third-party company that tracks listings and occupancy of Airbnb and Vrbo units worldwide, shows more hosts entering the Canadian market to compete for travelers’ dollars, even as demand is expected to decline.

AirDNA defines an Airbnb or Vrbo listing as “available” if it has at least one day booked or available during the month, while occupancy is determined by the number of nights booked on the platform compared to all nights available.

The number of listings on the two platforms has risen year-over-year across the country and in the six major markets tracked by AirDNA, but Vancouver and Toronto were the only ones included in the analysis to see increases in occupancy over the same period. .

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Canadian listings were up 34 percent from September of this year last year, while average occupancy fell to 60.4 percent, down 2.3 percentage points.

Edmonton, on the other hand, saw a 57 percent increase in listings over the previous year, but recorded a five percentage point drop in occupancy over the same period.

AirDNA economist Bram Gallagher told Global News in an email that while short-term rental supply growth is expected to continue to outpace demand, the number of new units coming onto the platform should also slow as rising interest rates deter new investors from entering the market. .

He also said that while today’s rental figures are down from 2021 peaks, they were never sustainable.

Rather than parallel, Gallagher said he sees the industry establishing a new “benchmark” after years of atypical pandemic trends.

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Airbnb, on the other hand, claims that third parties are unable to reliably calculate information about the platform’s bookings and usage.

The company also said in its results last week that the general demand from guests increased in the last quarter, especially in cities.

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“In one city alone — Toronto — we’ve seen a 60 percent year-over-year increase in bookings over the past 12 months to October 1, 2022,” the company said in a statement to Global News.

Airbnb will also release new features at the beginning of next year that will give hosts a better understanding of the fees paid by customers and more options for discounts and setting competitive prices.

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Rental loans are more vulnerable when interest rates rise, the expert says

Airbnb claims that new hosts are joining the platform today as a way to make extra money and compensate for high inflation. Airbnb’s own research claimed that 44 percent of Canadian hosts said the money they earn through the platform has helped them stay in their homes as costs rise.

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But homeowners who bought properties to rent out on platforms like Airbnb may also be at greater risk in today’s rising interest rate environment.

According to Shubha Dasgupta, both new and existing mortgage holders have to feel the pain of rising interest rates either when buying or renewing their loans, but homeowners who take out a mortgage on a rental property are often more vulnerable to interest rate hikes. CEO of Toronto-based brokerage Pineapple.

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While in standard apartments the owner can put down sums of 5 or 10 percent to purchase the property, rental purchases require a 20 percent down payment, which increases upfront costs, Dasgupta points out.

Home loans also tend to have higher interest rates because lenders hold these properties and the need to find tenants for cash flow, he says.

That could push many landlords and short-term hosts into alternative mortgage markets to qualify with more flexible loan terms and shorter terms, Dasgupta says.

Result? Owners who rushed to buy when interest rates were low during the pandemic are now finding their properties have much higher monthly costs.

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“Customers who used, say, a one-year term at a lower rate last year are much more exposed to a higher rate today,” says Dasgupta.

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Those with variable rate mortgages also pay more immediately when the Bank of Canada raises interest rates. The central bank has raised its key interest rate by 3.5 percentage points this year, and it has yet to do so.

Saeed says he has fixed rates on his home in Brantford, Ont. and his property near Grand Bend, but his Selkirk cottage is variable rate and he says payments have “exploded” this year.

While she’s actively looking for solutions that can keep her kids’ long-term savings goals on track — the more traditional Registered Education Savings Plan is one she’s used — she says she doesn’t feel “oh, bad me” about her situation.

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“Unfortunately, a lot of people have it a lot worse than us, but we feel the pinch. We’re not a multi-millionaire business. We’re just your average mom and pop, just trying to get ahead a little bit and leave something for our kids,” he says.

There are few options for short-term landlords like Saeed who want to hold on to their properties due to financial uncertainty.

Dasgupta says demand for long-term rentals is currently high in most Canadian housing markets, and any additional units would be “welcomed” back into stocks.

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He also says there’s a hybrid model that’s growing in popularity called “Airbnb arbitrage,” where the owner takes on a long-term tenant who continues to manage the short-term rental on his own, but takes on the burden of finding guests. and managing day-to-day operations.

Alternatively, Dasgupta recommends contacting your mortgage agent or broker if you need some flexibility in your payments. If you plan proactively, you can often extend the loan repayment period or create a schedule to return to regular payments once your cash flow is back on track, he says.

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For those hosts who are able to stretch their dollar and get through the recession, Gallagher said he expects short-term rentals to return as consumers feel they can take vacations again.

“Yes, during a recession, people pull back from travel, but it’s short-term, and they want to take their vacations: they don’t miss many vacation days unless we’re in a deep recession and we see long-term unemployment. It’s not what most economists expect today,” he said.

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