Millennials and the short-term rental market
August 8, 2019
Millennials and the Canadian Housing Market have been a subject of discussion for nearly a decade. Can they afford it? What will they buy? Where will they buy? When will they buy? These are all questions that reporters, realtors, and social scientists try and answer on a regular basis. Born between the years 1980 and 2000, millennials range from the ages of 19 to 39. The majority (80%) are looking to own a home eventually, but only 27% of them currently do. Of the remaining, 40% of them currently rent and 33% live with their parents.
Anyone who has rented a place in a major Canadian city knows how much of a hassle it can be. It takes time to find a suitable place for a price that you can afford, and most of the time you’re given the choice of settling for less or paying more. As rent prices continue to increase, the cost of living becomes a stumbling block for young Canadians who seek to establish their independence. As a third of Canada’s millennials are choosing to save on rent or mortgages by living with their parents (more than any other living generation), it suggests that quality affordable housing remains unattainable for many.
Adjusted for inflation, homes are 7-8 times more expensive now than when the Boomers were buying their first homes in the 1980s. Conversely, wages have stayed flat and where a home would have cost approximately 1.6 times a family’s annual income it can now be higher than 8 times in the hottest housing markets. While millennials may choose to blame a number of things for high rents and housing prices, the increase of short-term rental websites like Airbnb is not one of them. In our latest survey, we found that many Canadians (62%) believe that Airbnb makes rental housing more affordable or has no impact on the prices of housing. Millennials, at 67% are even more likely to say that Airbnb’s or short-term rentals have no impact on housing affordability.
These numbers are particularly surprising considering the amount of research demonstrating Airbnb’s effects on the housing market. In the report titled Short-Term Cities: Airbnb’s impact on Canadian housing markets, David Wachsmuth found that Airbnb has as many as 13,700 units available for renting in Montreal, Toronto and Vancouver that are rented for more than two months. These rentals likely do not have full time renters with year-long leases, thus significantly reducing the number of homes available for full-time occupancy especially in the rental market. These homes lay dormant for weeks at a time and are often leased to out-of-town occupants leaving local residents in the cold. Furthermore, a paper published in the Social Science Research Network titled, The Effect of Home-Sharing on House Prices and Rents: Evidence from Airbnb, has found that a 1% increase in the number of Airbnb listings leads to a 0.018% increase in rent prices.
As demand for housing rises in these major cities, a shortage of supply affects affordability. Thus, if Airbnb is limiting the supply and presumably increases the regional price of homes, then why do millennials and all other generations think otherwise?
We offer a few explanations below.
1. Millennials are more likely than other generations to use the service. According to Airbnb’s own data millennials make up approximately 60% of all guests who have ever booked on the app. Further, 80% of millennials say they’re looking for unique travel experiences offered by sites like Airbnb. Plain and simple, Airbnb provides a service that aligns with millennial wants. My experience with Airbnb is likely very similar to that of other millennials – annoyed about it when it exists in the city I live in (especially when apartment hunting), but ready to use it for cities that I’m temporarily visiting for vacation. This slight annoyance is not enough for millennials to see Airbnb as a real threat to the rental market.
2. It’s convenient. The millennial desire for convenience has shaped many behaviours, and Airbnb is no exception. Millennials are known for wanting to travel and explore the world, and Airbnb is a convenient option for those wishing to stick to a budget and live like the locals. Millennials are not willing to give that up any time soon, which might be causing them to view Airbnb through rose-coloured glasses.
3. Airbnb makes an impact in the rental market, but that difference is a mere drop in the housing bucket. The effects of Airbnb aren’t particularly obvious unless you’re directly exposed to it (ie. you have an Airbnb unit in your building). Rent prices can increase for many other reasons, making Airbnb one of the lesser known contributing factors.
Despite the evidence that Airbnb increases renting prices, Canadians do not see eye-to-eye with the experts. For as long as affordable housing stays a prominent issue at the top of everyone’s minds, millennials and Canadians would do well to recognize some of the factors affecting the short-term rental market.