Jordan: Ever since we launched this show almost two years ago now. We’ve done episodes about the housing crisis in Canada. It comes up often, and it comes up everywhere from PEI to Nunavut, to big cities like Vancouver and Toronto and Montreal. And every time we cover it, we start with why? How did this situation come to be? And there are of course, some different reasons in different places, but one thing, one thing keeps coming up. Again and again. Then you get one guess as to what it is.
News Clip: Well, City Place here in the downtown core is one of the highest concentrations of Airbnb rental units in Toronto, and tonight some housing advocates are saying that this booming business is driving up the prices for those who are actually looking for a permanent home.
Jordan: That was then though, and this is now.
News Clip: Toronto, a city known for its sky high pricing when it comes to housing and rentals is seeing a bit of a shift according to experts. Since the Ontario government has banned Airbnb, there was actually a huge influx in rental apartments being available.
Jordan: Right now, nobody is traveling, not even within Canada. And as you might imagine, that has had an impact on Airbnb’s is business model. And by impact, I mean it has basically obliterated it. So what happens to the rental markets in Canada’s biggest cities, to the thousands of Airbnb landlords, some of whom have staked their financial future on this platform? To the company itself? Does it die? Does it evolve? And what happens to the future of development in big urban centres? Because in order to understand how much could change from here, you also have to understand how much Airbnb has done to drive the direction of cities in the past decade. So that’s where we’ll start and who knows where we’ll end up.
I’m Jordan Heath Rawlings, and this is the big story. Matt Elliott is a columnist who writes about municipal policy. He writes in the Toronto star, he writes for the CBC and several other publications. Hi Matt.
Matt: Hey.
Jordan: We’re going to talk about Airbnb today, and it’s decline in Toronto and in other cities around the world, but why don’t you first give me an explanation as to how Airbnb rose to such dominance in the rental markets of big cities.
Matt: I mean, the short answer is money. Imagine you’re a landlord and you sort of have two choices with the property you own. The traditional way where you find a longterm tenant, you can make some money off of that, but there’s some, what landlords might describe as hurdles. The rules around evictions or raising rent or whatever. Whereas Airbnb is way simpler. Bad tenants don’t really last for longer than a few days in most cases. And then the money, I think the money is just the big thing. I mean, I imagine you could rent a place for $200 a night for 15 nights a month.
You’re at $3,000 a month in income from that. That’s more than the average rent in most Canadian neighbourhoods and enough to carry about a mortgage worth a million dollars or so. So when landlords were looking at those two options, they were increasingly going the Airbnb way.
Jordan: Because I know you cover Toronto, we’ll just sort of use it as a proxy for some of the biggest global cities, which have some of the same problems with Airbnb. Can you give me a sense of the size of Airbnb in Toronto before the pandemic began? Like how dominant is it? Was it?
Matt: It was very dominant and increasingly so, FairBnB, which is an anti Airbnb advocacy group. It’s important to note that, but they did some number crunching and looked at the data from Airbnb, and they estimated there were about 7,300 units on Airbnb that did not comply with the regulations passed by the city of Toronto. Those regulations were not enforced when they were doing this, but those were the rules saying, you can’t rent out an entire house that you don’t live in. You can only rent out your principal residence. So 7,300 units that would have been on the rental market, but had been sort of consumed by Airbnb, is hugely significant in a rental market as tight as Toronto where vacancy rates over the last few years have been around 1%. So I think one of the reasons people got pretty fired up about Airbnb is this idea that this is a rental market that is very, very challenging, very expensive, very tight. And then Airbnb comes along and suddenly another chunk of that rental market is no longer in the market.
Jordan: And we’re going to get to the pandemic, I promise, in one second. But how much in the hallways at city hall was this a hot button issue in the months leading up to say February or early March when things started really happening?
Matt: I mean, housing in general is such a huge issue at city hall. There’s increasingly concerns that we’re looking at a city that is just unaffordable for anybody but the top of the economy. So if you’re a service worker, if you’re a teacher, if you’re a nurse, if you’re a police officer, like all of these jobs, some of which pay pretty darn well, when you look at what housing was renting for in Toronto, it just wasn’t really doable for a lot of these people, especially if they’re people that are looking at, ‘I want to start a family. I want to have a couple of kids’. And you only one of the people in a couple goes to work in those situations. That arrangement used to be doable in a city like Toronto. And increasingly, it was not. So when you have that sort of greater backdrop of housing, councillors and bureaucrats and policy makers and advocates are looking for levers they can pull that might improve the situation. And when you looked at Airbnb and said, ‘okay, this is a relatively new thing, it has taken units out of the rental market’. This is something that we can look for whatever difference it’ll make. It would make some difference to make things better as far as housing goes.
Jordan: But you mentioned that they weren’t yet enforcing the regulations.
Matt: They were not. And that’s an interesting story by itself, because the regulations passed by council, at a high level, the major changes that they wanted to impose were you can only rent out your principal residence. So if you have a condo and you want to rent it for a couple of weeks on Airbnb in the summer, while you’re off on vacation or whatever, that’s totally fine. But if you buy another condo with the plan to just rent it on Airbnb, and make an income off of it, that was going to become against the rules. There was also going to be a cap on the number of nights you could rent a unit in Toronto. So 180 nights a year it was going to be the cap. But when they passed those, suddenly there was a challenge by a landlord, turned out that Airbnb was supporting this challenge.
And while that was before the tribunal, they held things up for two years pretty much. About a year and a half to two years, while they waited for a ruling on whether these regulations could actually go into effect. That finally resolved itself in the fall. But then all of a sudden you have this pandemic happen. And a lot of stuff has ended up on pause as a result.
Jordan: What’s happened to Airbnb in Toronto and other places since the pandemic began?
Matt: It all kind of blew up to be honest. Airbnb’ers, the renters are primarily travellers, whether international or domestic travellers. They’re people coming from one place to another, and in mid-March, traveling shutdown. Just is not happening. So there goes the market for Airbnb in most cities. So all of a sudden you have a situation where you have all this supply, thousands of units that were on Airbnb, and that’s how landlords made their income, suddenly were empty.
Bookings were being canceled and going forward, there’s not a lot of hope for our travel to resume in the near term. So it was a major sort of shock to the system as all of these units suddenly no longer had people in them at all.
Jordan: How bad could this get for the company if it continues? And, and what have they sort of already done in an attempt to respond to it?
Matt: They’ve done a few things. Airbnb announced a fund to support landlords who were facing cancellations for bookings that came in before the pandemic. So I think there’s a desire on Airbnb’s parts to sort of sustain the Airbnb economy. Obviously, they want to make sure that they’re still people with Airbnb listings after all this happens, but Airbnb itself is facing major financial distress. They have laid off a quarter of their workforce. They are saying their revenue for the year is about half of what it was projected to be at the start of the year. So they’re facing a multibillion dollar hit and they’re resorting to layoffs, and it’s a really tough situation for the company. And then for landlords, I think some of them are going to be able to weather this because they’re looking at a situation where they bought a unit to list it on Airbnb. They can defer their mortgage right now at a lot of banks.
So maybe there’s a way that they can hold on and keep going through this. But you also have situations where landlords have hugely overleveraged themselves, really gambled on this as a way to make a quick buck. And they’re looking at situations where ‘this was going to be my nest egg, this is how I was going to get rich’. And that is really starting to fall apart for a lot of them. When I wrote about this for The Toronto Star a few weeks ago, I got a lot of emails from landlords with Airbnb units who were just incredibly angry about what I had written because I was not coming down on the side of the landlords. Talking about how much of their life savings were tied up in this Airbnb model and their despair for what’s going to happen in the future.
Jordan: Can you give me an example of what that looks like when you get severely over leveraged investing in Airbnb?
Matt: Well you imagine a situation where you come into Toronto and you buy a house for yourself for, everything in Toronto is close to a million dollars these days. So say you buy a million dollar house to live in, and then you think, well to make some extra money, I will also buy a downtown condo for a half million dollars. And I will pay that mortgage and make some extra cash by putting it on Airbnb. A lot of these people don’t want to touch the long term rental market because this might just be a short term thing for them. They’re thinking, ‘I’ll buy this condo, I’ll use it on Airbnb for a year or two, and then I’ll flip it and make some money on the sale in addition to the money I’ve made on Airbnb’. So you do that once and maybe it’s okay, and you can get through this. You do that twice as some people have, you do that three or four times where you’re amassing this portfolio of properties that you are listing on Airbnb, and all of a sudden something like this happens and your house of cards starts to tumble down a little bit.
One of the things that people noticed when they looked at the Airbnb market in Toronto is just the share of units where it was all just one landlord listing multiple units. That’s a very, very common thing. So you have these people trying to build an empire as an Airbnb, and when you’re trying to build an empire, that’s where it can be very easy to have the legs kicked out from under you and suddenly your whole empire is is dirt.
Jordan: We’ve been kind of tiptoeing around it, but since you’ve written about it in the column, and I’ve talked about it on Twitter, let’s just talk about why so many people are not mourning this at all, and find it so hard to have sympathy for both landlords and the company itself. There is a strange rejoicing going on in the public discourse.
Matt: Yeah, I think some of that is just the inherent inequality to Toronto, that has been a widening for a lot of people over the last few years. So you have this notion that this is a city where you have these very rich people, property owners, that are doing quite well. And then you have people who are probably younger in a lot of cases, who are looking at the city that they like quite a bit, but also grappling with what looks to be a reality that actually owning a home in this city is just so out of reach for so many people who would really like to stay in Toronto and build a life here and build a family here. So I think that’s the backdrop to a lot of it. So then you have a situation where like I said Airbnb going away would not fix Toronto’s housing market or rental market, but there is this idea that it would help to a pretty significant degree if all those Airbnb units suddenly came on the market looking for longterm tenants. Because then you’d see some downward pressure on rents. You’d see vacancy rates increase a little bit. There’d be a bit more choice for people who are in the market for a rental home and you would not have the situation where there’s just this mad scramble every time you’re looking for a house. I remember when I was looking for a house, and this was years ago, or a place to rent years ago, and there would be just dozens of people at a showing and it would just be a race to see who could get applications in the fastest to get a decent place. And that’s only gotten worse in the years since.
So I think there’s this idea that this has a bit of a reckoning where what was happening was not entirely just. Where people were making a lot of money off this stuff and taking units out of the rental market. And if there can be a reversal of that, people will see some justice there.
Jordan: I know it’s only been a couple of months since Airbnb’s model kind of dried up. But have we seen any evidence of that kind of downward pressure you mentioned, or just any statistics about what’s happened in the rental market?
Matt: Yeah, we have seen some drops in the average rents that are reported by some people who track that kind of thing. But the biggest harbinger of it was Ice Condos, which is a condo complex right in the core of Toronto near Scotiabank arena. In the days after the economy was shut down and the orders were issued, all of a sudden there was this really consistent wave of units from this one condo building being posted for longterm rental on listings.
And this was a harbinger because Ice Condos had been sort of an epicentre of the Airbnb thing in Toronto. So there had been studies that suggested more than 20% of the units in this condo were listed on Airbnb. You could go there on a Friday night and the lobbies would be filled with suitcases and people asking for directions and such like that.
And in the days after, and the weeks after, more than a hundred units suddenly from this one condo complex had popped up for longterm rent. And a lot of the units fit a profile. They were smaller, 400, 500 square feet, and they were being offered furnished. And this was sort of the telltale sign that, ‘okay something is happening here’, because this condo had effectively been, operating as a hotel. And now all of a sudden we’re seeing these very hotel room-like units, being offered for longterm rent. But it’s one of those things too, where it’s not a great time to find a longterm tenant either. So that’s had some downward pressure on the rents that they might’ve gotten for these things, which is, I think a good thing in the short term for the overall rental market to see a little bit of downward pressure and a little bit more affordability.
Jordan: So some of them are being offered for longterm rental. What about the rest of them? Do we know if they’re being put up for sale, if they’re just sitting empty while people wait and cross their fingers? Do we have any idea?
Matt: We have some idea. What we know about the real estate market in Toronto is that the number of listings is at an all time low. So a lot of people are not in a rush to sell right now. I think there’s this general idea that if you wait a few months, if you can hold out, you might be able to get a higher sale price in July or August, than you would get right now. So there has not been, in most cases, a rush to list things for sale. People are hoping for a bit of a recovery before they get to that point. So again, it really comes down to how big a bet landlords put on Airbnb. How overly leveraged are you in this market? How long can you go before you start running into a situation where you have no income to support your family? These sorts of things.
There are some Airbnb hosts or landlords that are full time Airbnb hosts and landlords, they quit their jobs. I heard of some of these people. To exclusively list their properties and manage their properties. And then there are some that are, I think what Airbnb originally had in mind when they launched their service, which is people who have full time jobs or part time jobs, and this is just a way to make a few extra bucks a month. But I think the number of people who are doing this as a real source of income had increased a lot over the last couple of years.
Jordan: And those are very serious Airbnb’ers are already upset with you for your column, but do we know how they feel about how Airbnb itself has handled this? Because they’ve kind of staked their livelihood on this platform right?
Matt: Yeah, and that was the other thing I heard is that a lot of them are incredibly unhappy with Airbnb, and Airbnb has not covered itself in glory. They sort of publicly suggested the federal government might be smart to give them a bailout, in early April. And that did not go over well with the general public. MP Adam Vaughan responded with one word. No. So that didn’t seem to go over well with the politicians either.
And then like I said, Airbnb ultimately runs itself like a tech company. So their model for the last decade has been to get a whole bunch of users, not worry too much about being profitable, and then at a certain point, they would issue an IPO, make some cash, and then they’d be laughing.
They never got to the IPO stage and they are now at a situation where their revenue has been cut in half. They’ve been laying people off. So there’s a real question. If you are a landlord who has put all your eggs in this Airbnb basket, whether there’s going to be any kind of future for you.
Like I said, Airbnb did offer some support, for landlords who had seen cancellations. For trips that were booked before the COVID stuff was really well known, but that will not amount to a whole lot when you’re talking about the number of landlords affected and the length of time this is looking like it’ll last.
Jordan: We talked a little bit about what Airbnb has sort of done in the short term and you mentioned the help for landlords. Do we have any idea yet what their longterm future looks like? Do they adapt? Do they change their offering and their business model? Or are they still kind of in the bucket of hoping this goes away quickly or they’re screwed?
Matt: I think I would sort of separate that question to two answers. There’s the first thing to consider, which is just Airbnb as a corporation that may or may not make it through this, depending on how well they’ve saved and manage their business and how much cash they have around and whether there’s investors that can support them and get them through this. And that is a business question and nobody really knows the answer to that. But then there’s the longer term question of, ‘will there be a market for an Airbnb-like service in the future?’ And I think there probably will be. Unless something changes pretty significantly because big cities want to have tourists.
We want to have tourism come back after this. We’re going to need a lot of tourism to support the economy. So there’s going to be a big drive to get lots of people to visit cities. And then when those people are there, there’s going to be the question of, ‘okay, where do those people stay?’ And Airbnb met that pretty well, at least as far as capacity goes.
And the alternative, which would be hotels, there just has not been a real drive to build hotels and increase the capacity. In the last five years, Toronto added just over 100 hotel rooms, even as tourism was spiking to the tune of thousands of people a year come into the city. So there’s just not room for people to stay. Especially in places that are affordable. Airbnb did do that in providing an affordable option for people to visit cities where hotel stay prices would have maybe priced them out of going there. So I think there needs to be a real conversation. Government at all levels, saying, ‘okay, if Airbnb had a lot of issues, what it did to the rental market, but we still want tourism, we want a lot of tourism, so how do we do that in a world where we’re really trying to avoid making the same mistakes where we’re giving over a big chunk of the rental market to the tourism market?’ You know, can we keep these separate to some degree? Can we find a way to satisfy the tourism demand and work towards affordability of rental as well?
Jordan: Is anybody talking about that right now? I mean even you, have you kind of thought about what that looks like? I know you think a lot about municipal policy.
Matt: I do, I do. And it’s a lot of fun. People should try it. But yeah I have done some thinking on this and ultimately it comes down to incentives that are offered to developers, right?
So if I’m a developer, I can build any kind of building you want me to build. The challenge has been that over the last two decades basically, the kind of building that made the most economic sense for me to build was a condo. Condos had the best return on investment the best, incentive structure as far as taxes goes. It was the surest way for builders to make a buck. So I think what governments need to look at is how do you change those incentives so that other kinds of things are built in addition to condos? How do you get more of a mix? So over the last few years, we’ve seen some of that with a push to build more purpose built rental apartment buildings, which had really stopped being part of the construction mix for a long time.
That’s coming back a little bit as governments have changed and offered incentives and tax breaks to say, ‘don’t build a condo here and build a rental apartment building’. And I think there’s probably a way to do that with hotels as well, to say, ‘okay, how do we get our hotel capacity up a little bit in a way that we’re not giving away all kinds of goodies to developers who put up hotels, but just shifting the incentives a little bit. So a hotel becomes an attractive thing for a company to buy into as a development. And then I think the other thing as well is Airbnb probably showed a really strong appetite amongst travelers for things that hotels don’t traditionally offer. Things like having a kitchen in the place that you’re staying, so you don’t have to go out to eat for every meal. Things like instead of individual rooms, if you’re traveling in a group where there’s six of you or whatever, you can all get together and get a three bedroom place. And I’ve found that very appealing when I was traveling. I’ve heard from people that they really liked that bit about Airbnb the most.
I think Airbnb, rightfully in a lot of ways, gets cast as a villain, but there’s also some interesting things that the popularity of Airbnb tells us about tourism and about traveling and about ways that people want to do it. So if that can be adapted to new hotel models, I think that would go a long way toward meeting some of this demand and ensuring that what we saw with Airbnb and the rental market doesn’t just happen again in the years after COVID.
Jordan: It’ll be fascinating to see what evolves from this time. Thanks Matt.
Matt: Thank you.
Jordan: Matt Elliott, city hall columnist for The Toronto Star, CBC, and other places. You can find him on Twitter @graphicmatt, that was The Big Story. If you’d like more, you can find us at thebigstorypodcast.ca. You can write to us the email address is thebigstorypodcast@rci.rogers.com, you can always talk to us on Twitter @thebigstoryfpn, and we would love it if you would go to your favourite podcast player, especially if they let you rate, and review us, and tell us how much you love the show. If you hate it, you can keep it to yourself.
Claire Brassard is the lead producer of the big story. Ryan Clarke and Stefanie Phillips are our associate producers, Annalise Nielsen is our digital editor. And I’m Jordan Heath Rawlings, thanks for listening. Have a great weekend, and we’ll talk Monday.
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