B.C. island imposes tax on short-term rentals to fight housing crisis

A road on Cortes Island, B.C., is pictured. (iStock)

A remote Canadian island is breaking ground on a new way to buffer the negative effects short-term vacation rentals have on the housing crisis facing small, rural tourism-based communities.

B.C.'s Cortes Island is making housing history as the first community in the province to tax short-term holiday rentals and have all the funds directed to affordable housing projects, said Mark Vonesch, the area's Strathcona Regional District director.

A three per cent municipal and regional district tax (MRDT) has been applied to vacation rentals since July 1, Vonesch said.

The tax will be collected by the province and directed monthly to the Cortes Housing Society to support the development of the 24-unit Rainbow Ridge affordable rental project.

“It's the first time in B.C. history this tax is being used 100 per cent for housing,” he said of the tax that was originally set up to create funding for tourism advertising.

Affordable housing was added as a permissible use of the funds in the 2018 provincial budget.

“We are the first community to request it for housing,” Vonesch said.

The tax applies to rental operators using online platforms like Airbnb or Vrbo and short-term rentals that don't use internet 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 small island with just over 1,000 full-time residents is suffering a housing crisis, with housing costs far exceeding the median incomes of residents, Vonesch said.

The median cost of a house on Cortes was $800,000 in 2022. Yet households with a median income would only be able to afford a home worth $207,000, a housing needs report last year showed.

A quarter of the island's households rent, and 42 per cent of renters live in housing that is too expensive, unsuitable or in poor condition, the report noted.

Single-parent families, women, seniors and members of the LGBTQ community are most impacted by the lack of stable or affordable housing, Vonesch said.

What's more, each summer, many residents must temporarily live in tents, campers or cars because their place is used by vacationing owners or as a short-term rental during the high season.

There are approximately 100 short-term rentals on the island, most of which are unavailable to full-time renters, Vonesch said. Nearly, 94 per cent of short-term rentals in 2021 were listed as entire dwellings, meaning no one else was living in the property.

The lack of affordable rentals and housing has huge ripple effects - causing acute labour shortages for businesses and the tourism sector itself, shortages of essential workers like doctors, nurses, teachers and BC Ferries staff, and the rapid greying of the island's demographic because young people and families can't find homes or afford to stay.

It's a tough balance because like many beautiful rural communities, tourism is fundamental to the island's economy, Vonesch said.

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

“What I'm excited about with this tax is it's just asking [short-term rentals] and tourists to contribute to solving the problem.”

The tax isn't steep and won't impact tourism levels, and it's not onerous for operators or the Strathcona Regional District to implement, he said.

“I think [the tax] is something more communities should be looking at,” he said.

“It isn't going to solve the problem, but it's part of the solution.”

Banning short-term rentals on the island isn't possible or practical, Vonesch added. Cortes will also look at other measures small tourism communities have put in place to tackle the impacts of short-term vacation rentals, he said.

Ucluelet, a small tourism resort community on West Vancouver Island, tightened bylaws in September to curb the explosion of online short-term rentals in the community.

The original bylaws allowed residents the chance to offer B&B-type services in their homes as a “side gig” but the rise and demand from online platforms meant the regulations became a “loophole” for the commercial vacation market, the district said.

Now only principal residents of a property can apply for the licence to operate a short-term rental, exterior entrances aren't allowed, and there are limits on the number of guests and suite size to match the scale of the neighbourhoods where they operate. Vacation rentals existing before the bylaws were tightened are grandfathered in and are exempt.

The neighbouring town of Tofino, another hot spot for tourism on Vancouver Island, is also reconsidering its bylaws and engaging the community to discuss short-term rentals and what measures might be effective to limit their impact on local rental housing. It has also beefed up business licence bylaws for short-term rentals on complaint response times and parking requirements.

However, it seems 90 per cent of Tofino's current operators appear to meet the provisions of the bylaws. No one can be forced to convert vacation suites into permanent rentals, staff noted in a report.

In May, Tofino reaffirmed its crackdown on short-term rental operators running illegally after it secured a court order on some property owners in the South Chesterman Beach Homes neighbourhood to stop unauthorized vacation rentals.

Enforcement measures by municipalities with regulations governing short-term rentals have met with limited success. Data is difficult to obtain and those offering short-term rentals online often flout the rules.

The scale of the impact of short-term rentals across the province is significant.

In 2021, short-term rentals removed almost 14,000 units from B.C.'s long-term rental market, according to a BC Ministry of Housing report in April. That's about two per cent of B.C.'s total rental stock

About 50 local governments have bylaws that restrict short-term rentals and about 25 require business licences.

Inside Airbnb, a housing advocacy website that collects data on short-term rentals, suggests that in Vancouver, 39 per cent of more than 6,000 online listings are operating without licences.

The Union of BC Municipalities (UBCM) called on the province in May to improve accountability for online short-term rental platforms and develop regulations for the booking sites to collect and provide data to local governments and ensure a rental operator has a business licence.

Better data on short-term rentals will allow for better policy decisions by municipalities, the UBCM said.

Allowing regional districts to issue business licences, increasing the fines local governments can levy against rogue operators, and implementing other tax measures to generate funding for enforcement were other recommendations made by a joint UBCM and provincial advisory group.

Housing Minister Ravi Kahlon has said the province recognizes it's a pressing issue and is taking the UBCM recommendations to heart with new legislation on short-term rentals pending.

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

The province's failure to regulate short-term rentals and a patchwork of policies have had dramatic impacts on communities of all sizes across B.C., said Green MLA Adam Olsen in a press release.

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