Housing Stock: To Rent it or Airbnb it?

In comparison to buying a home, renting in Toronto used to be a fairly good deal. For much of the decade, home prices were skyrocketing while rents were manageable. This enabled renters to save more towards a down payment for a home or simply better afford the city. This is no longer true with rents rising strongly versus modest home price gains in the past couple of years. One significant factor for this has been a rental shortage in the city, with vacancy rates at historic lows. Some place the supply side issues on the lack of new rental buildings coming on the market, while others point to the negative affect AirBnB is having on the city. This article will look at the AirBnB issue, by analyzing price movements and rental supply.

Q1 RentalsSource: TREB, Six Housing Sense

Leveraging TREB’s Rental Market Report, we can see the number of rentals reported by TREB in the first quarter of each year have significantly leveled off in the past five years. From 2011 to 2015, TREB’s numbers showed the GTA was averaging 15% rental growth. Since then, Q1 rental figures have only grown by 9.6% in total, just better than a 2% annual growth rate. Had the region maintained its 15% average growth rate, which was accelerating into 2015, the quarterly number of rentals would have exceeded 10,000 in 2019.

Airbnb listingsSource: Torontoist.com, Insideairbnb.com, Six Housing Sense

In comparison to the stagnate rentals growth, Airbnb listings in the city have grown at a tremendous pace. After building inventory through the first five years of the decade, Airbnb has managed to double its housing stock in the last four years. This growth period aligns with the stalling number of rentals tracked under TREB. It is unlikely to be a one to one match for all of these listings appearing on the rental market, but clearly Airbnb is costing the GTA some rental options.

Rent Prices Q1Source: TREB, Six Housing Sense

Naturally, the limited rental stock is a factor towards the increasing rent prices in the GTA. From 2011 to 2015, the average cost of a one-bedroom rental increased by only 7%, while two bedrooms were only slightly better achieving 11% growth. Since 2015, one-bedroom rents have risen by 35% and two bedrooms are up 29%. These numbers are perfectly inverse to the rental supply side, which saw 76% growth from 2011 to 2015, however, only 10% over the past four years. These numbers would point to the fact that the lack of supply is having a significant impact on prices.

Speculating at what the rental market would look like today had supply growth and price growth maintained their rates during the first half of the decade, we see far reduced rental prices. The average one-bedroom rent would decrease from the actual Q1 cost of $2,143 to just $1,693 – a $450 savings. A two-bedroom unit would also see a sizable drop, from the current $2,811 to $2,428 – a still noteworthy savings of $383 a month. It is impossible to blame these increases entirely on Airbnb, there are multiple factors at play; however, it is becoming more obvious that the city has a relatively newly created supply side problem.

The rental market’s supply side issues and growing prices can not be blamed squarely on Airbnb coming to town. That said, it is noteworthy the timing of rapid rent increases, slowly inventory and Airbnb’s growing footprint. They may not be solely to blame, but the evidence would suggest Airbnb is a major factor for why residents are paying more to live here.

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