The island of British Columbia imposes a tax on short-term rentals to combat the housing crisis

Vancouver Island

Posted Sep 5, 2023 at 3:38pm ET

Pictured is a road on Curtis Island, British Columbia. (iStock)

A remote Canadian island is starting to lay the groundwork for a new way to mitigate the negative impact that short-term vacation rentals are having on the housing crisis facing small rural communities dependent on tourism.

B.C.’s Curtis Island is making housing history as the first community in the province to tax short-term vacation rentals and have all money directed into affordable housing projects, said Mark Fonech, the region’s Strathcona Regional Director.

Fonech said a municipal and provincial tax of three percent has been applied to vacation rentals since July 1.

The levy will be collected by the county and channeled monthly to the Curtis Housing Association to support the development of the 24-unit affordable Rainbow Ridge rental development.

“It is the first time in the history of British Columbia that this 100 percent tax has been used for housing,” he said of the tax, which was originally put in place to provide funding for tourism advertising.

Affordable housing was added as an allowable use of funds in the 2018 county budget.

“We are the first community to request this for housing,” said Fonech.

The tax applies to rental operators who use online platforms such as Airbnb or Vrbo and short-term rentals that do not use online booking services but bring in more than $2,500 annually.

Online platforms will collect the tax on behalf of the vacation rental operators.

Like every community across Canada, the tiny island of just over 1,000 people is experiencing a housing crisis, Fonech said, with housing costs far exceeding the average income of residents.

The average cost of a home in Cortes will be $800,000 in 2022. However, middle-income families will only be able to afford a home worth $207,000, last year’s Housing Needs Report showed.

The report indicated that a quarter of the families on the island rent, and 42 percent of the tenants live in housing that is expensive, unsuitable or in poor condition.

Single-parent families, women, senior citizens and members of the LGBTQ community are most affected by the lack of stable or affordable housing, Fonech said.

Furthermore, each summer, many residents must live temporarily in tents, campers, or cars because their places are used by vacationers or as short-term rentals during high season.

There are nearly 100 short-term rentals on the island, Fonech said, most of which are not available to full-time tenants. Almost 94 per cent of short-term rentals in 2021 were listed as full residences, meaning no one else was living on the property.

The lack of affordable rents and housing has huge ripple effects – causing severe labor shortages for businesses and the tourism sector itself, shortages of essential workers such as doctors, nurses, teachers and BC Ferries staff, and the rapid aging of the island’s youthful demographics. Families cannot find homes or afford accommodation.

It’s a tricky balance, Fonech said, because tourism, like many beautiful rural communities, is central to the island’s economy.

“I don’t want to blame Airbnb for the housing crisis, but it contributed to it,” he said.

“What interests me about this tax is that it only asks (short-term rentals) and tourists to contribute to the problem.”

He said the tax is not prohibitive and will not affect tourism levels, nor is it onerous for operators or the Strathcona region to enforce.

“I think (the tax) is something more societies have to look at,” he said.

“It won’t solve the problem, but it is part of the solution.”

Fonech added that banning short-term rentals on the island is not possible or practical. He said Curtis will also look at other actions taken by smaller tourist communities to address the effects of short-term vacation rentals.

Ucluelite, a small tourist resort community on West Vancouver Island, tightened its bylaws in September to curb the spread of online short-term rentals in the community.

The district said the original bylaws allowed residents the opportunity to provide bed and breakfast-type services in their own homes as a “side party”, but the rise and demand from online platforms meant the bylaws became a “hole” in the commercial holiday market.

Now only principal residents of the property can apply for a license to operate a short-term rental, no outside entrances are allowed, and there are limits on the number of guests and suite size to match the size of the neighborhoods in which they operate. Existing vacation rentals prior to the tightening of bylaws are considered exempt.

Neighboring Tofino, another Vancouver Island tourism hotspot, is also reviewing its bylaws and engaging the community to discuss short-term rentals and what measures might be effective to reduce their impact on local rental housing. It has also strengthened business licensing regulations for short-term rentals with regard to response times to complaints and parking requirements.

However, 90 percent of current Tofino operators appear to meet the provisions of the Bylaws. The staff noted in a report that no one could be forced to convert vacation suites into permanent rentals.

In May, Tofino reaffirmed its crackdown on illegally operating short-term rental companies after it obtained a court order against some landlords in the South Chesterman Beach Homes neighborhood to stop unauthorized vacation rentals.

Enforcement measures taken by municipalities with regulations governing short-term rentals have had limited success. Data is hard to come by, and those offering short-term rentals online often break the rules.

The magnitude of the impact of short-term rentals across the county is significant.

In 2021, short-term rentals removed nearly 14,000 units from the long-term rental market in BC, according to a BC Department of Housing report in April. This is about two percent of the total rental stock in British Columbia

About 50 local governments have bylaws restricting short-term rentals and about 25 require business licenses.

Inside Airbnb, a housing advocacy website that collects data on short-term rentals, reports that 39 per cent of the more than 6,000 online listings in Vancouver operate without permits.

The Union of British Columbia of Municipalities (UBCM) called on the province in May to improve accountability for online short-term rental platforms, establish regulations for booking sites to collect data and provide it to local governments, and ensure that the rental operator has a business license.

UBCM said better data on short-term rents would allow municipalities to make better policy decisions.

Allowing regional districts to issue business licenses, increasing fines that local governments can impose on rogue operators, and implementing other tax measures to generate funding for enforcement were other recommendations made by a joint advisory group from UBCM and the Provincial Advisory Group.

Housing Minister Rafi Kahlon said the boycott recognizes that it is an urgent issue and is taking UBCM’s recommendations into consideration with pending new legislation on short-term rentals.

However, the BC Green Party reiterated its call for the province to take action this week.

Green MLA Adam Olsen said in a press release that the province’s failure to regulate short-term rents and a mix of policies has had significant implications for communities of all sizes across British Columbia.

“Basically, the county government has delegated the regulation and enforcement of short-term leases to local governments without giving them effective tools to do the job,” Olsen said.

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