Brandon Donnelly — Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly. — Page 319

The prevailing view on short-term rentals right now seems to be this :

That is, it's viewed as a zero-sum game between residents and tourists. There are only so many homes within a city, and so if any of them are to turn into short-term rentals, then it is a direct reduction in the supply of available long-term homes. This can also happen very quickly given the asset-light nature of Airbnb and the fact that these spaces aren't usually purpose-built.

It is for this reason that many cities have enacted strict short-term rental laws that basically only allow you to rent out your principal residence when you're not around or if you happen to have extra space. In the case of New York , you have to be physically present when the dwelling is being rented, and so the use case is exclusively "I have extra space for you."

Either way, the basic idea is to stop people from removing homes from the long-term market. I do, however, find it curious that reductions in housing supply seem to be generally viewed as bad, but that increases in housing supply are often met with skepticism . Doesn't housing supply work in both directions? Why aren't more people clamouring for new homes to be built?

Where my head is at on this issue is that I don't see it as a zero-sum game. I believe that there should be rules and regulations around short-term rentals, but that they shouldn't stamp out all use cases other than "here's an air mattress in my living room." At the same time, I think we should be viewing this as an opportunity. Clearly we need more homes, more hotels, and more short-term rentals.

It's only zero-sum if we make it that way.

This week it was announced that Canada's population grew by approximately 430,000 people over the last quarter (+1.1%). And that it represents the highest population growth rate of any quarter since the second quarter of 1957. Even more impressive, though, is the fact that in the first 9 months of this year we have already added over 1 million people in total. This beats all full-year periods since Confederation in 1867!

Here's what all of this starts to look like visually:

The unfortunate side of these records is that it is coming at a time where we're, perhaps counterintuitively, building a lot less new housing ; which is to say that construction starts are declining. In fact, I was on a call this week where people who examine development and construction costs all day were predicting a 5-6% decline in hard costs in the Toronto region next year. And this is a direct result of fewer new projects getting started.

Broadly speaking, this is how things tend to work in real estate development: there are heavy lags between changes in demand and changes in supply because of how long it takes to build new buildings. But what's happening right now is more than this. Interest costs are impacting everyone. And investor interest in pre-construction homes has softened significantly, demonstrating how much our industry relies on individual investors. Many projects cannot go.

What I ultimately think this is going to do is exacerbate our current supply-demand imbalances. Meaning that when the market does come back -- and it of course will -- it's going to come back with a vengeance. And that's because it is going to need to catch up to all of the new demand that is accumulating as we speak.

Here’s a potentially hypothetical question.

If you were in the market for a 3-bedroom penthouse, and its 1,100 sf wraparound terrace with skyline views just so happened to have an enormous neon-like sign above it, would you consider this to be a feature or a bug?

The sign does turn off at 11PM, but before then, it creates this awesome/lovely pink glow on the terrace. My sense is that this will be fairly divisive. You’re either going to love it or you’re going to hate it. Which side are you on?

Let me know in the comment section below.