The open house is all set up, but nobody’s coming. There’s plenty of foot traffic outside, but those are mostly Airbnb guests, wheeling bags in and out of the building, and they’re not here to buy a home — just to occupy one for a few days while they still can.

In October, the B.C. government announced a ban on short-term rentals that are not in the owner’s principal residence. These units are the most troublesome, because they take housing off the market for long-term residents.

The ban includes units like this one in downtown Victoria — condos that were previously grandfathered-in despite a ban introduced by the city in 2018. That “legal non-conforming” designation kept thousands of homes off the rental and condo market in Victoria alone, and by some estimates boosted their value by as much as $50,000 to 100,000 because of their substantial revenue-generating potential. Before the new legislation, that premium could be made back in a year or two — but now the clock is ticking down to May, when these condos’ ability to earn money as short-term rentals will evaporate. That’s leading to a rush of units hitting the market as owners try to get out of pricey investments that seem destined to plummet in value.

So far, listing prices haven’t reflected this new reality. Hence the empty open house.

“I think a lot of these owners are still in denial,” says real estate broker Dustin Miller.

Not all, though. Miller started hearing from some Airbnb owners within minutes of the government’s announcement that it would severely restrict short-term rentals.

“One of them decided to list right away — like, ‘Let’s get ahead of this, let’s sell,’” he recalls.

The landscape has changed

Miller’s office is just across the street from one of the busiest Airbnb “ghost hotels” in the city, the Union building, and just up the street from several others, including the Janion. In all, there are well over 500 units of housing within a block of his office that are currently zoned for short-term rentals. He manages some of them himself, and many of his clients in the real estate business have been investors looking to buy and sell short-term rentals.

To keep an edge in that market, he maintains a list of which buildings hold legal non-conforming status — allowing them to host short-term rentals. Now, that list makes it easy to track listings that had previously been used as short-term rentals. As of Nov. 15, according to an analysis by Ricochet, at least 46 condos with this status have been listed in the weeks since the ban was announced.

“One or two years ago you’d see maybe five listings at a time. So yeah, it’s been a sharp, sharp increase,” Miller says.

One listing is for a one-bedroom, one-bathroom condo in The Falls, a condo building near the Royal BC Museum. On Airbnb, it currently rents for about $210 per night, and according to Airbnb analysis website AirDNA, it has earned about $45,000 per year on the site. Now it’s been listed for $739,000, $11,000 less than it sold for in the summer of 2022.

When Ricochet attended an open house at the condo, no potential buyers were there.

Another open house that same day, for a condo located off a historic downtown alleyway, also had no visitors. The seller knocked $30,000 off the price a few days later. As of the time of writing, it still has no buyer.

Flooding the market

The lack of interest in those condos is typical of this particular moment — but this particular moment is uniquely bad for sellers. Interest rates are twice as high, or higher, than they have ever been since the newer buildings went up, so most have never been sold in a market where money is so expensive to borrow. There’s no indication interest rates are going to fall anytime soon, with meeting minutes from the most recent Bank of Canada meeting showing some board members still believe more rate hikes will be needed to fight inflation.

The result of the glut of listings, the increased cost of borrowing, and the high prices is that nothing is moving. Looking at October data from downtown Victoria, where the vast majority of the region’s short-term rentals are located, the numbers are staggering.

In a month when 172 condos were up for sale downtown, only 16 were sold, representing a sales-to-new-listings ratio of about 9.3%. (A “balanced” market is considered to be about 14-20%, according to the Victoria Real Estate Board, while anything below 14% is a buyers’ market.)

But the numbers could be even worse than that for sellers: according to data shared by Miller, just two deals were finalized after the ban was announced in mid-October, so the numbers don’t yet fully represent the new reality. And that still only reflects a small fraction of the number of condos believed to be currently operating as full-time Airbnbs in Victoria (over 1,600). If the pattern holds, many more units will be coming on to the market in the coming months.

Not a single short-term rental unit has sold since the ban was announced, according to Ricochet’s analysis.

Miller suspects buyers are waiting for the bottom of the market, which he imagines to be more than $100,000 lower for most condos than the prices for which they’re currently listed.

“We haven’t had an October this slow in a long time,” he says. “Everybody can feel the market suddenly decline, and they’re going to wait to see it fall more.”

Hundreds of units of new housing downtown

Given the new short-term rental legislation, higher borrowing rates, and B.C.’s empty home and speculation taxes, the condos’ value as investments is diminishing. So this market is not likely to attract the speculators and institutional investors that previously piled into Victoria real estate. That leaves room for buyers who actually want to live there, once they decide that prices have dropped enough.

That’s why Victoria Mayor Marianne Alto feels optimistic.

“Imagine in a relatively smallish area — the downtown core — if you suddenly added 300 units of housing,” she said, considering the likelihood of even a fraction of the short-term rentals going up for sale or rent. “That’s a substantial shift in the availability of units that are for longer term rental or purchase. And that’s huge.”

Alto says she values what visitors bring, in terms of economic contribution and the feel of the city. But she envisions a city where residents, who care more about the city’s future and development, have more of a foothold in the core.

“I travel to places to experience what they are, and perhaps what they’ve been; historical and current,” she mused. “But I don’t often go places to get involved in planning for the future.”

She has welcomed the province’s hard line on short-term rentals, despite having been skeptical of Victoria’s own ban in 2018 when she was a councillor. Now, with the housing crisis having accelerated even further beyond where it was at that time, she says the city is “desperate” to find any option to house residents.

“You want to turn over every rock, open every door, create every policy and incentive that you possibly can to create housing of all kinds everywhere,” she said.

One door that is probably not going to open because of this new legislation is a substantial increase in rental supply. The math just doesn’t work. Take, for example, the most recent short-term rental unit listed at the time of writing: a 592 square-foot one-bedroom, one-bathroom condo across the street from Miller’s office on Pandora Avenue. It last sold in 2018 for $447,500, when a mortgage could be had for about 3.75%. At that rate, accounting for condo fees, it would be feasible for an investor to rent that apartment for about $2,200 per month without taking a loss.

At today’s rates, the same condo would have to sell for $100,000 less than it did in 2018 just to be able to be rented at that same rate. But instead, the opposite has happened — it listed on Nov. 10 for $579,000 — so accounting for condo fees, the rent would have to be nearly $3,500 for an investor just to break even. And in Victoria, average one-bedroom rents have already gone well beyond the normal affordability range, at $2,100 per month, according to monthly reports by Rentals.ca.

Accordingly, the few long-term rental listings that have started to appear online offering former short-term rentals (almost all of them furnished) have been offered at high rates even for Victoria — some as high as $4,100, in that instance for a two-bedroom downtown apartment that “sleeps six.” The Craigslist post has since been deleted.

Given the lack of options, investors have been up in arms about the legislation as they anticipate huge losses on investments previously marketed as a sure bet for long-term gains. Articles have proliferated in local and regional media, with sympathetic framings: retirees whose nest eggs are tied up in short-term rentals, business owners who made big bets on the future of the market, even a tugboat deckhand who would prefer to rent his place while at sea.

When a council member proposed holding a session of council to hear from short-term rental owners in early November, Alto voted against the motion along with most of the rest of council. It’s not that she doesn’t empathize, she said — she acknowledges that many invested “in good faith,” hoping to be able to make a living off the income from one or more short-term rentals — but she said it’s beyond the municipality’s jurisdiction to intervene in the province’s decision.

Plus, she said, “It’s not as if we’re not hearing from them.”