Municipal regulation of short-term rentals "is low-hanging fruit" that helps improve housing affordability, a new study by McGill researchers suggests.
The study found that rents were relatively lower in Canadian municipalities that imposed restrictions on when and how principal residences can be offered as short-term rentals.
The benefits also extended to neighbouring municipalities that did not adopt restrictions.
'Absolute, iron-clad evidence'
The findings suggest that municipal regulation is a useful tool to improve housing affordability and manage the surging cost of living, the researchers said.
"We found absolute, iron-clad evidence that short-term rental regulations put downward pressure on rent. Lots of things cause housing to be expensive, but this is low-hanging fruit to manage those costs," said David Wachsmuth, lead researcher and Associate Professor in the School of Urban Planning.
Wachsmuth noted that while rents are always rising, rents were lower than they otherwise would have been after regulation, and the effect grew over time.
"When municipalities imposed harsh rules, a year later, rents declined in those cities relative to what they would have been otherwise. Two years later, they're down even more. That is not just localized to one neighbourhood but spreads across a whole region," he said.
Housing markets are regional
In the 309 neighbourhoods subject to restrictions on short-term rentals of principal residences, monthly rents were on average $24 lower in the year after the regulations took effect than they would have been in the absence of the regulations. The effects grew in subsequent years, reaching $55 per month in regulated neighbourhoods and $40 per month in neighbouring areas without regulations.
"Montreal has strict rules, but Laval and Longueuil, their rents went down too because housing markets are regional," Wachsmuth said.
In total, the researchers estimate that the restrictions saved Canadian renters $192.4 million in rent payments each month in 2023.
The researchers said they focused on restrictions on principal residences (as opposed to other regulations of short-term rentals) because they are intended to address housing affordability and are the most common form of ambitious short-term rental regulation in Canada.
Study spans all Canadian urban regions
Prior research on this topic focused on small geographic areas and short timescales. This study analyzed the census metropolitan data for all Canadian urban regions as well as rental listings, allowing the researchers to assess the effect of short-term rentals on rents across a range of contexts. The data covered six years (2017-22), including the market dip and rebound associated with the COVID-19 pandemic.
Future work will focus on improving the measurement of short-term rental activity, including better ways to distinguish occasional home sharing from listings that function as de facto commercial rentals.
About this study
"Housing versus home sharing: the causal impact of short-term rental regulation on residential rents," by David Wachsmuth and Cloé St-Hilaire, was published in Regional Studies.
The study was funded by the Social Sciences and Humanities Research Council.
