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Examining the impacts of STAs on County housing

It took an expert on urban planning from McGill University to outline the impacts short-term accommodations (STAs) are having on Prince Edward County, especially as it pertains to the housing crisis. Professor David Wachsmuth, Canada Research Chair in Urban Governance, Associate Professor, School of Urban Planning at McGill University, addressed the Committee of the Whole last Wednesday to talk about the impacts STAs are having on communities and the housing market. Professor Wachsmuth shared an overview of the County’s STA market and talked about housing market impacts, as well as some regulatory options. It was noted the distribution of STAs in the County were found to be concentrated to the south, as well along the waterfront.

In 2018 and 2019, the number of STA listings peaked at just under 1,000, a number that dropped considerably during pandemic. “The number of reservations were down 25 per cent in the summer in 2020 and 2021, but prices per night have absolutely exploded,” explained Wachsmuth. Prices for STAs prior to the pandemic were around $250 to $300 per night, but this summer they were around $500 per night. Wachsmuth said Prince Edward County was compared with other leading seasonal tourist destinations in Canada and concluded the County is unique. “The study concluded the growth of the STA market in terms of listings was slowing down, with COVID causing a further negative shock, then prices exploded, and this sets Prince Edward County apart from any other market in the country.”

He noted the doubling or tripling of total house sales in 2021, and almost a doubling in average home sale prices in just a couple of years. “It’s a COVID pattern in other words.” He said about half of all home sales in 2016 and 2107 turned into STAs. “That’s a really enormous number, but it has been declining year-after-year.” While figures aren’t yet available for 2021, in 2020, only about a quarter of home sales became STAs. The number of STAs that are active year-round remained stable at about 300 (2017 to 2019). “Then there was a surge of a couple of hundred that were active each summer; that number dropped substantially at the beginning of the pandemic and in spite of prices nearly doubling, that number has not recovered.” He said second home sales are the major culprit in terms of the vast increase in housing prices and rents seen since 2020.

Wachsmuth spoke to the municipality’s registration system that came into effect in 2019. “We were really puzzled by this really strange combination of stagnating STA supply and this absolute explosion of STA prices, which is unique in the country,” said Wachsmuth. He said it suggests there is something that has been limiting new STA supply. Properties that might have become STAs have instead become second homes, and secondly Wachsmuth noted it has been illegal to register STAs since last fall. “We couldn’t detect any impact with the registration moratorium on the creation of new STAs; we found the exact same rate during the time when it was illegal to register an STA,” he said. The moratorium on STA registration was not the key thing limiting STA supply since the pandemic; “it’s been competition from second homes.”

It was concluded COVID is the driver of housing issues in the County. “Prior to the pandemic, we saw a set of patterns in housing affordability that were worrying, but were not a flat out emergency, which is how I could characterize the situation since the pandemic started.” He further noted that STAs in second homes are a single market, which is problematic. “Fundamentally, we are going to need more housing.” He noted that typology of housing could short-circuit the STA and second home market and instead supply housing that is more appropriate for those who live and work here.

Principal residence STAs should be prioritized said Wachsmuth. “The trade-offs between STA and housing affordability issues are much larger with dedicated STAs than they are with casual home-sharing arrangements,” he said. “We should be prioritizing people operating home-sharing arrangements out of their own home as opposed to commercial dedicated STAs.” Grandfathering was also addressed by Wachsmuth who noted it as a big problem. “If there is any change in the rules which restricts the ability for people to operate STAs the way they were previously able to, existing incumbents are going to be handed licences to print money; the more permissive grandfathering is for previous rules, the less effective new rules are going to be.” He said they looked at offering financial incentives to STA hosts to return the units to the long-term market, something he said was untenable.

Redistribute or restrict were two options Wachsmuth spoke to where the redistribute approach encourages home sharing and discourages commercial STAs. “The idea would be to ban dedicated STAs, but make it possible for people to offer casual part-time STAs out of their own residences.” He said this would grow the number of people who are operating as STA hosts, but would shrink to near zero the number of full-time operations. He said the revenue earned through STAs will be earned by Prince Edward County families who would not list for the entire year, but would rent out their home for a few weeks when they take a vacation. “This would grow the number of people operating STAs, but really reducing the negative housing impacts.”

The ‘restrict’ option would consider a hard cap on the number of licences granted. “You would restrict the number of licences; you try shrinking the size of the STA market in order to shrink the negative housing impacts.” He said this could be done best with very high fees. He said handing out only a few licences would ensure a consolidation of hosts, “a smaller number of bigger players.” In 2021, there were about 35,000 reserved accommodation nights in Prince Edward County earning about $16 million. “If these were no longer permitted to operate, this would support around 1,700 home-shares operating two to four weeks per summer, each of whom would earn roughly $9,500. This is a lot of households that could each earn a lot of money if they were willing to operate an STA occasionally.”

“The simplest substitute for commercial STAs is second home, so any regulatory options that restrict the STA market would have some effect in producing more supply for second home purchasers,” Wachsmuth said. “There is no magic bullet, but the most realistic thing to be seriously considering is to make sure there is enough new supply of housing which is well suited to residents and being less suited to being a second home or STA.” The full presentation is available for viewing on the County’s YouTube channel.