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Short Term Rental Legislation

It is fresh off the press on Monday, the British Columbia Provincial Government made a significant move in an attempt to address the housing crisis in BC. Starting May 2024, they've rolled out new legislation that could potentially shake up the housing and tourism sectors. But what exactly does this mean for BC and specifically, Kelowna – the fastest-growing community in Canada? When I heard about the changes my feelings were mixed, part of me thinks they Government is doing their part to add more supply to the market, but if only things were that simple. However, making a significant change like this to the area not only will change the way people travel to Kelowna, it could change the overall dynamics here in the Okanagan. My biggest question I have is can Kelowna’s hotel industry withstand the demand for overnight stays in Kelowna and how will it affect the economy? This weeks email is about my research in trying to find the answer to that question as we all know tourism in Kelowna plays a vital role in our community and economy. But if you haven’t heard yet, here are the key Changes in the Legislation:

  1. From May 2024, all short-term rentals in communities boasting populations over 10,000 will be limited strictly to principal residences.

  2. Resort-designated communities or those with populations under 10,000 can choose to adopt this principal residence rule, although it's not mandatory.

  3. In the province's interior, this rule will encompass communities including Kelowna, Kamloops, Vernon, Penticton, West Kelowna, Fort St. John, Cranbrook, Salmon Arm, Lake Country, Dawson Creek, Summerland, Coldstream, and Nelson.

Steeped Fines: The penalties have gotten steeper. Short-term rentals owner/operators who breach local municipal by-laws now face a fine of $3,000 for each infraction every day. Additionally, Regional Districts can impose a whopping $50,000 penalty for severe by-law contraventions. A Closer Look at Kelowna: Now, focusing on Kelowna: it's flourishing at a 14% growth rate as per the 2021 census. With projections estimating an influx of 40,000 individuals in the upcoming 18 years, it's no surprise the government is keen to make more housing available for long-term tenants. But the question arises: Will this legislation enhance Kelowna's affordability? While my initial inclination is positive regarding the affordability aspect, my optimism isn't for the obvious reasons. Indeed, housing affordability and availability are interlinked, and greater supply is undoubtedly a part of the solution. Yet, Mayor Tom Dyas of Kelowna predicts nearly 2,400 residences - those listed on platforms like AirBnB or VRBO - might bear the brunt of these changes. There are exemptions for the principle residences so there is a chance that not all 2,400 Air BnB’s will be removed from the marketplace. This brings us to a broader concern: what ripple effect could this have on tourism, job opportunities, and the region's tax revenue? My biggest question I had when I heard this news is can Kelowna’s hotel industry withstand the loss of overnight stay supply. In seeking answers to this question I had completed some research which proved to be a bit of a rabbit hole and the main reason why this email is getting out later than it normally does. As of 2020, Kelowna had about 3,500 hotel rooms. However, by 2021, Natalie Corbett, the president of the Kelowna Hotel Motel Association, highlighted a curious trend. The post-pandemic demand for hotel rooms surged as travel restrictions eased, but a simultaneous labor shortage meant only 60% of rooms were operational. This restricted room supply naturally led to elevated prices. Tourism Kelowna's 2022 data reaffirms this 60% average occupancy rate. Such dynamics create an interesting scenario. Even without getting into the labour market intricacies, if the legislation indeed aids affordability and consequently the cost of living, it could theoretically remedy the labor shortage for these hotels.

However, the sheer mathematics of the situation uncovers a pressing issue. Despite having 3,500 hotel rooms, considering a 60% occupancy, only around 2,100 rooms are utilized at any given moment. Given that Tourism Kelowna reported 1.8 million overnight visitors in 2022, even under the most favorable conditions, there might not be enough hotel accommodations available, particularly during the high-demand summer season.

Economic Implications: Kelowna's tourism industry is instrumental to the community. As per Tourism Kelowna, it contributes roughly $2 billion annually to the local economy. This breaks down into 13,000 jobs, $443 million in visitor spending, and an impressive $204 million in tax revenues. Visitors not only have so much money they can spend on vacations but most have minimum standard. Reducing options also reduces the quality stay options. Thus, reducing overnight stays might have negative effects. If accommodation becomes scarcer and pricier, tourism could drop. This could spell disaster for businesses already reeling from past travel restrictions. Looking into the outcome on this, I predict a potential drop in visitor spending, leading to job losses and an eventual population decline. While housing might become more accessible, the rationale behind it could be because of dwindling demand rather than an increase in supply. The charm of the Okanagan region is undeniable, but growth may stall if consumer spending dips and construction halts due to a shortage of tradespeople. The economy stands to lose more. While I commend the government's initiative to enhance housing supply, the real test lies ahead. The broader ramifications on the economy and the local community could be impacted on top of the housing supply.

Have a great week!

Mark and Maddie


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