Alberta’s Airbnb Effect
As the home-sharing service explodes in popularity, hotels take a hit. Should we use regulations to level the playing field?
by Alberta Venture Staff
After thumbing through her janitor-style key ring, Natasha Stenzel opens the door to number 506, Liberty Quarters. The six-storey apartment building neighbours Edmonton’s Chinatown and is a stone’s throw from the new downtown Hyatt Place. She takes off her shoes before entering but discourages me from following suit. “It’s just something I do,” she says.
The apartment is spotless: gleaming granite countertops and a patio door you could walk through if you weren’t careful. Even the grout between the tiles doesn’t show signs of visitors. “Our cleaners get in there with a toothbrush,” Stenzel says. She takes a wine glass out of the cupboard, holding it up to the light. “Not a spot on it.”
Stenzel is a master of real estate. She completed her master of business administration at Athabasca University and now sells real estate for St. Albert’s Reality Executive Masters and owns her own rental company. But in Alberta’s downturn economy, not all is well with real estate. By November 1 of last year, a sizeable portion of Stenzel’s portfolio sat vacant. End-tenancy notices flooded her inbox. “I didn’t get just one notice. We got notices from some of our top corporate clients that had corporate suites for over seven years,” Stenzel says. “I was so shocked.” By December, Stenzel had lost $42,000 in one month and was on track to continue losing.
So, after staying in an Airbnb in New York City while on vacation, Stenzel decided to give it a try herself. Airbnb is a home-sharing marketplace that allows hosts to list their spare room, or entire home, on the Airbnb website. In turn, travellers can choose from more than 1.5 million listings in 191 countries. Similar to Yelp, hosts largely rely on guest evaluations and reviews. “I put one suite on [Airbnb],” Stenzel says. “No word of a lie, within a half hour, I heard this little jingle. The Airbnb jingle.” Her first guest was a doctor working at the Royal Alexandra Hospital who booked the apartment for an entire month. Stenzel now has 10 of her 40 units listed on Airbnb.
While Stenzel uses Airbnb to help weather Alberta’s economic storm, not everyone approves of the home-sharing service, especially of multi-unit hosts like Stenzel. “It is a major issue globally and I would categorize it as a looming issue in our province based on data to date,” says Dave Kaiser, CEO of the Alberta Lodging and Hotel Association (AHLA). Last June, Ryerson University published a report outlining Airbnb’s impact on the Canadian hotel industry. It cites several issues surrounding the home-sharing service, including appropriate zoning, insurance and taxation. At the same time, the service is eating into the hotel industry’s market share. As of June, Airbnb represents a 1.5 per cent share Calgary’s accommodation demand (the report did not study Edmonton). It doesn’t seem like much, but when you look at Airbnb’s growth rate – an average of 140 per cent since early 2015 in Vancouver, Calgary, Toronto and Ottawa – it could quickly spell trouble for the hotel industry. “It is not a level playing field,” says Lyle Hall, managing director of HLT Advisory and co-author of the Ryerson report. “Airbnb started out as somebody renting a room in their apartment generally while they’re still there. What it has gravitated to, in some cases, is people buying units to rent them out solely to Airbnb.” Hall says the efficiency and sophistication with which these multi-users operate is directly competing with hotels that run their businesses in the same way.
Sophistication is what Stenzel is all about. She curates each of her suites to match guest desires, chasing positive reviews to boost her rating. She points to artwork on the wall, a cut-out of “NYC” on the television stand and a silver decorative camera sitting on the desk as examples of the care she takes. Stenzel spends an average of $3,600 doing upgrades for each suite before listing it on Airbnb. She points to the flat-screen TV in the living room: “We bought a new TV, transferred the old TV into the bedroom. Artwork, knick-knacks, upgraded a lot of the kitchen stuff.” She scans the room, adding up the extra costs she has invested into number 506, which she calls the Broadway suite. “We even took a course on how to make towel animals. I could make a little swan for you right now!”
While Stenzel operates like a one-woman hotel owner, Kaiser says Airbnb operations are working above the fray of regulations, making it unfair for the hotel industry. “It is attracting a different kind of operator,” Kaiser says, “the multi-unit owner or renter. Regulation is non-existent in most cases.”
Like Hall, Kaiser cites the lack of insurance and commercial taxes as the hotel industry’s major grievances towards Airbnb. According to the Ryerson report, commercial property taxes for hotels are much greater than tax rates for apartment and condo unit owners: 1.6 to 2.5 times higher in Calgary. “If I own a unit in a condo building, my property tax is going to be a fraction of what the hotel down the street is paying on a room-by-room basis,” Hall says. As for insurance, Airbnb guarantees a host protection plan, covering $1 million for damages, but there are limitations. On the website, Airbnb says the host protection plan should not be considered a replacement for homeowners or renters insurance.
There are also questions of whether or not Airbnb hosts should be subject to the four per cent tourism levy hotels must collect or be allowed to contribute to the voluntary destination marketing fee many hotels pay. The fees range from one to three per cent and create stable funding for tourism and marketing. “As [Airbnb] grows in market share, tax revenues will go down,” Kaiser says. “What does that mean for tourism if we are not as profitable?”
While Stenzel may look like a multi-unit operator hoping to make a quick buck, she doesn’t conform to the image of an industry leach that opponents of Airbnb might make her out to be. She pays an extra $50 for insurance a month per unit and hires professional cleaners after each stay. “I pay higher than commercial taxes,” she says. “I pay personal income tax at a much higher level. I pay my condo fees. I am still inspected by the health board.” Not only that, Stenzel fully supports tourism levies and a destination marketing fee, as long as she can reap the benefits. She wants to advertise through Travel Alberta. “I’d love to pay into that and have the competitive advantage,” she says. “If I had it, I’d beat them.”
And she could use the boost. She shows me the Airbnb app on her phone. She earned $30,305 for the month of August. “We’re still losing give or take $5-10,000 a month. But that’s much better than $42,000!” She hopes to begin breaking even, or perhaps make a bit of money through Airbnb, within the next couple of months. “The extra cleaning and the high operational costs … we don’t get a lot of money, $89 a night.”
The growing popularity of Airbnb was a major topic of conversation at the recent board meetings of the Hotel Association of Canada. The association is looking across the country to see how Airbnb is affecting the hotel market, with an eye to the regulations that could be put in place to ensure a level playing field. So far, Quebec is the only province that has established laws surrounding the home-sharing service. They require owners who frequently rent out their property to obtain the same certificate as hotels and bed and breakfasts. Travellers are charged a lodging tax up to 3.5 per cent and violating the law can cost operators between $500 and $50,000. “We need to start informing and educating governments at a provincial and municipal level in our province on some of the unintended consequences,” Kaiser says.
“These things all start small and they have the potential to grow to be very significant.” The AHLA is looking at other jurisdictions, like Quebec, to judge whether this type of regulation would be effective in Alberta. Within the next couple of months, the AHLA will put together a position on home-sharing legislation to bring to the Alberta government. “We want to try and get ahead of it before it becomes less than a looming issue,” Kaiser says.
Calgary versus the world