Bosley Realestate

How To Navigate The Economy Of Short-Term Rentals In Toronto

January 16th, 2019

Before we dive into the ins and outs of home sharing in Toronto, let's explore more about the role Airbnb has recently been playing in the evolution of Toronto real estate.

For consumers looking for short-term rentals in the City of Toronto, the arrival of Airbnb provides choice and affordable accommodation. It also gives homeowners the chance to generate income from their homes, which can be a real plus given the hefty mortgages that the bulk of homeowners are shouldering, simply to afford owning a home in Toronto. Here's a CBC article from January 9th 2019, discussing Airbnb draining 6,500 homes from Toronto housing market!

Given the market conditions and other factors, there have been a series of problems created by the growth of Airbnb in Toronto. Not only is it a tough market for buyers to find a home that suits them in their price point, finding a suitable, affordable rental can be challenging too with low vacancy rates. It was becoming  common for tenants to get evicted from their homes so that the landlords can rent the home on Airbnb, because of greater potential for income with lower overhead and contractual obligation on the part of the landlord.

Unfortunately, it’s also hard to foster community in a sea of short-term rentals in residential districts, with Airbnb clients coming and going (and sometimes not being “good” neighbours to permanent residents).  In order to address a number of these problems, the City of Toronto has moved to close the loopholes around Airbnb rentals by proposing new regulations.

 

 

Reigning In Renting

In early 2018, Toronto City Council passed strict new regulations that will restrict Airbnb rentals. Basically, homeowners will no longer be able to put secondary suites in their homes up for short term rental (28 days or less) via Airbnb or similar rental services. They will only be able to rent out spaces in their primary residences.

Long term tenants have the option to put their units up for rent, as long as it is their primary residence, but only as their lease and Provincial legislation permits.

Anyone wishing to rent their home for short-term rental space is required to register with the city and pay an annual fee of $50. Hosts are not allowed to rent out their home for more than 180 nights a year. However, if the host is present in the home, there is a limit of up to 3 rooms available for rental.

Companies like Airbnb that act as a third party to facilitate these rentals would be required to pay an initial license application fee of $5000, with a licensing fee of $1/per night/per booking.

The purpose of regulations is to eliminate the “ghost” hotels that negatively impact the availability of housing stock and affordability of rentals, which is no small problem in a city where the vacancy rate scrapes 1 per cent and prices continue to climb. While there is widespread support from many (including Fairbnb, the hospitality workers’ union-backed coalition whose main goal is to ensure that short-term rentals are for principal residences only) who believe the spirit of these regulations will go to support supply of housing stock, while letting Airbnb hosts operate legitimately, there is a split opinion on this matter.

With substantial mortgage costs burdening many homeowners in Toronto, renting out secondary suites for short-term rental was a viable way to help pay that big mortgage.

For some homeowners, losing that secondary source of income, may be outweighed by the protections that stricter regulations may provide for their properties. Stories have been surfacing lately of homeowners have fallen victim to tenants working Airbnb schemes. Recently reported in the Toronto Star, two condo owners discovered that their income units were being used as short term rentals without their knowledge or consent. For one couple, they became aware of the issue after a series of bizarre incidents (like reports that the unit door had been left wide open) and then subsequently discovered their unit posted on Airbnb. Even more concerning? The fact that it had more than 70 customer reviews, written by people who had stayed in the suite. Having found their tenant through a third party and signed the lease digitally, they hadn't met their tenant, who claimed to work for a property management company - the same company name listed on the Airbnb ads. Now that they've serve the tenant with an eviction notice for violating the terms of the lease, they've at last reclaimed their suite. It is their hope that tighter regulations placed on third party renting, as well as Ontario's new Standard Lease Agreement - required to be used in all leases as of April 2018 - which will help prevent this from happening to others unsuspecting homeowners. The regulation placed on the third Read the full story here: "Toronto Condo Owner Discovers Unit Listed On Airbnb Behind Her Bback"

And for a more detailed breakdown of the new rules: “Toronto Passes Strict Airbnb Rules Aimed At Preserving Long-Term Rental Supply” and “Toronto Tackles Long-Term Rental Supply With New Airbnb Rules”.

 

 

Vancouver And Airbnb

Of note, Vancouver has implemented regulations around Airbnb rentals to help release pressure on their extremely low vacancy rate, like controlling the type of housing that is eligible for short-term rental. Vancouver is the “other” hot market in Canada, and Toronto has followed suit with a number of initiatives to try to cool down a runaway market. (i.e. the Fair Housing Plan rolled out in Ontario about a year after similar measures were taken in B.C.).  This means that Toronto, again, can view how Vancouver's crack at policy impacts the market. Here is a story about Vancouver’s Airbnb regulations: "Vancouver To Limit Short-Term Airbnb Rentals In Bid To Free Up Housing".

And here is a development that they may want to take notice of. Recently the B.C. Government reached a tax deal with Airbnb, to generate taxes from short term rentals which they intend to use to fund affordable housing initiatives. Click here to read "British Columbia Reaches Tax Deal With Airbnb". This deal, which takes effect on April 1, is a welcome move for the city of Vancouver, as this new deal is expected to generate $16-million a year, as well as an additional $5-million to local governments, which could do some good in the face of Vancouver's affordable housing crisis. Although Airbnb regulations limit a homeowner's ability to generate revenune with their homes, this does demonstrate a scenario where it is possible to direct revenue to the root of the problem - affordable housing, which may improve affordability and take strain off the vacancy rate.

 

 

Do The Regulations Go Far Enough?

While homeowners are required to register with the city and to declare these homes as residences, they don’t have to prove it. Arguably, these regulations are a step in the right direction, but they don’t hold ghost hotels, absentee landlords and investors accountable. In fact, these regulations could permit abuse of the system, which is the primary objection from numerous groups.

Fairbnb is pushing to have the “principal residence” identification authenticated for Airbnb hosts across the board. It is also lobbying for condo boards to have the option to exclude entire towers from short-term rental licensing at their discretion.

The first such agreement in Canada was signed in the fall  of 2017 between Airbnb And Neptune Condominiums, which lets their  condo board keep tighter control around short-term rental, including requiring guests to have government ID on file with Airbnb, having the option to evict guests if numerous complaints are made and collection of insurance and hosting fees.

Here are some stories that delve a little deeper into the Airbnb debate, prior to council passing the regulations: “Toronto Could Soon Make It Harder To Use Airbnb”, “City Wrestles With Airbnb Rules”, “Chris Selley: Toronto's AirBNB Regulations Are A Confused, Half-hearted Distraction”, “Don’t Believe The Pitch From Airbnb”.

Here are the recent updates to the Airbnb Terms Of Sevice, dated January 27, 2019.

 

 

Do You Care To Share?

The success of Airbnb has already affected Toronto’s real estate market in both obvious and subtle ways. First, the Globe and Mail recently shared a study out of Simon Fraser University that hypothesized that short-term rental websites have helped to drive up property prices, particularly where investment properties are concerned. Whole houses and apartments are standing empty between vacation renters, taking a chunk out of the available rental housing stock while exacerbating the affordable housing crisis. With the consequent scarcity of long term rentals, rents go up. Here's how 'Ghost hotels' on Airbnb violate city rules for short term rentals!

Secondly, if you are a condominium buyer with an entrepreneurial spirit and wish to become an Airbnb host, your housing options will be considerably diminished. It’s a shame that, in a market that already values freehold housing far above condominiums (with an ever-expanding price gap to match), it is freehold housing owners who are reaping the benefits of short-term rental sites, while most condo owners have their hands tied. But it's not all roses for house owners too. Some of our clients who rent through Airbnb tell us that it's critical to field inquiries and try sleuth out the bad apples. Young adults who live in the suburbs have discovered it's easier to rent a house in the downtown core for the night or weekend to use as a crash pad when they go out partying. They hit the clubs and then bring the party back to the rental, where their pals can pass out when they're sufficiently inebriated. There's less risk of being caught than renting a hotel room and it's cheaper when spread across a large group of partiers in a house with more bedrooms. Our clients see a consistent set of questions that flag the possibility of partiers. They ask "Does the owner live in part of the dwelling?", "Is there any onsite parking and if yes, for how many cars?" and: "How close is it to the night life?" Fortunately, these young adults lack finesse.

One way of ensuring a level playing field for both Guests and Hosts, is that the site has a review system for both. Either party can either leave 'star ratings' or a word review ranking their experience. Categories include 'cleanliness' and 'communications' that begin from the point of contact to completion, ‎so that the system protects the majority who understand that sites with a review system promote good behaviour. It's only the kids who are less invested - or couldn't care less - that are the troublemakers. That said, one friend who runs an Airbnb rental site out of Montreal suggests Hosts only accept Guests who already have an established Rating. It's an easy way to avoid all the potential pitfalls, and we certainly recommend it to you if you're planning on becoming a host!

All pitfalls and windfalls considered, yes, it is tempting to try one's hand at becoming an Airbnb host. But as hosts continue to ignore condominium rules and regulations, anger their neighbours, risk their insurance (and potentially their mortgage lenders if there are clauses in the mortgage document restricting rentals), and skirt city bylaws, until clear legislation is passed in every city and country, Airbnb will find it hard to shake their shady reputation (not to mention the fines and court cases). So, if you're ambitious about joining the shelter-sharing game, we advise that your first move is thorough research. Look into your city's bylaws, your condo's regulations (if applicable), and review your property insurance policy and mortgage documents. For those that exercise caution and common sense, renting your home has the potential to be a very rewarding experience!

Depsite all of the ongoing controversy, it's still a very popular industry. In fact, according to the Toronto Star, as of January 2019, the Number of Toronto homes being used as tourist rentals has nearly doubled!

If you need inspiration of what types of spaces receive top-notch feedback from AIrbnb travellers, here are the Top 20 Places To Stay In Toronto By Airbnb.

 

But be you must be cautious - especially with the regulations still in flux. As media outlets like The Globe and Mail, Global News and the Toronto Star have began reporting in the Fall of 2018, Toronto has become stuck enduring a “destructive rental crisis", while an appeal of new short-term rental rules has postponed the city's regulation changes until at least next year! Read: Appeal Stalls Toronto’s Short-Term Rental Rules For At Least A Year. Not areassuring end to this tale! We'll be watching closely for new developments!

 

 


 

Want to know more about Airbnb and Toronto real estate? Take a look at this post, which included our Buyers search for a condo that allowed short term rentals: Airbnb And The Economy Of Shared Housing

And here's some additional posts that explore the complexity of the Toronto shelter economy:

Buying Toronto Real Estate In The Age Of Electronic Surveillance

Urbaneer’s Winter 2018/2019 Toronto Real Estate Forecast: Part Two

Urbaneer’s Winter 2018/2019 Toronto Real Estate Forecast: Part One

Foreign Buyers, Property Prices, And Toronto Real Estate

 

Are you considering buying or selling your property? In order to navigate Toronto's complex real estate market, you need to not only accurately chart a path, you need to have a comprehensive view of market influences. With decades of in-the-trenches experience and a multi-disciplinary education in housing, my team and I can offer relevant support to understand the dynamics of our housing industry.

We are here to help!

 

~ Steven

Steven Fudge, Sales Representative
& The Innovative Urbaneer Team
Bosley Real Estate Ltd., Brokerage - (416) 322-8000

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