In recent years, Airbnb - and other short term rental platforms - have been a great way for homeowners to generate income and help offset the high costs of Toronto real estate. In fact, I’ve written about Airbnb a couple of times before, as it's become an integral part of the shelter economy over the past few years. Check out these older posts called Airbnb Regulations and Toronto Real Estate and Airbnb and the Economy of Shared Housing.
As this movement of home-sharing developed and grew, in many urban centres residents began documenting the negative impacts these platforms were having, including a dwindling supply of unfurnished housing for long-term tenants and other unanticipated social issues (i.e. challenges in community-building in neighbourhoods given the transiency of occupants, and impacts of quiet enjoyment), which began to divide the quality of life of city residents directly against the revenue potential, and profits, for short-term rental owners.
In fact, as these platforms exploded, the concept of housing as a collective right versus housing as a private commodity became a political issue. This has led governments across the globe to endeavour to find a balanced solution by introducing regulations tailored to their locations.
That was until a global pandemic became our daily reality.
*Image rights belong to Laist (Apu Gomes/AFP via Getty Images)
When COVID-19 hit, the short-term rental and home-sharing economy took a nose dive. The CEO of Airbnb, Brian Chesky was quoted as saying, “I’m not sure if there’s a more difficult thing that a CEO of a travel company could ever do than go through this. You feel like you were T-boned, or like a torpedo has just hit the ship.” Indeed, every human on the planet is being told that ideally, they should stay at home and isolate themselves - the complete antithesis to the goals of companies like Airbnb.
When the WHO made their official announcemtn on March 11th, Airbnb was swift to form new policy to deal with the spreading virus. As of March 18th, all travelling and hosting was shut down, while reservations for stays made on or before March 14, 2020 - with a check-in date between March 14, 2020 and May 31, 2020 - were covered by a variety of refund options. They stated that taking this action was necessary to do their part to slow the spread of the virus, and in the long-term to preserve home-sharing experiences as a trusted way to connect with others throughout the world. While this shut down was unavoidable, many homeowners took a serious hit. If fact, there are hosts around the world - including Toronto - who depended on Airbnb for income, and are now having toruble paying bills and mortgages. Unfortunately, the ban on travel and home sharing is not likely to lift unitl July or beyond!
However, when we face the post-pandemic frontier, CEOs like Chesky are banking on a travel boom - and you should too! Think of the toll that being cooped up has taken on the human psyche; the natural way to counter the isolation blues would be to take a trip, enjoy fresh scenery, meet new people. If you are someone who depends on the income of hosting travellers - or simly ejoys doing it - we give guidance below on how you can ensure your Toronto home is ready to host again. There have been policy changes recently, so it's important to make sure that you are set up to not only re-engage in the short term rental economy legally, but also profitably.
This is a summary of the most recent regulations for Toronto, along with an overview of the forces at play which resulted in these new government policies. Once the worst of the pandemic has passed, and people start to move, travel, and explore the world again, here's what you'll nee to know in order to be a profitable Airbnb host in Toronto.
LPAT Upholds Bylaws
After a lengthy appeal process towards the end of last year, the Local Planning Appeal Tribunal (LPAT) decided to uphold the decision to tighten Airbnb rental restrictions that had been originally passed in 2017; these were supposed to be implemented in June 2018. Although it is possible that landlord groups will continue to lobby and/or seek subsequent appeals, these regulations are widely expected to stand firm when they roll out in early 2020.
Starting soon, Toronto Airbnb hosts will need to register with the city, and current and new Airbnb hosts will have three months to comply with this licensing and registration. There is fine print (i.e. a possible grandfather clause for existing short-term rentals prior to the bylaw passing), but basically Airbnb hosts will be permitted to rent only up to three bedrooms in their primary residences as short-term rentals (which is considered durations less than 28 days). If a resident wishes to rent their entire home, it can only be rented if the host is away up to a maximum of 180 days per year. This means 'ghost hotels' - which are unoccupied dwellings used specifically as a short-term furnished rental unit - can no longer be operated in Toronto.
Also, Airbnb will be restricting the ability of guests under the age of 25 to book homes within their own communities (though they will still be able to book private rooms within homes). It's expected that exceptions to this new rule may be made for Airbnb users under 25 who have many positive reviews or meet other yet-to-be-announced criteria.
Beyond any immediate arguments in support of and against these regulations, the level of regulation is, in and of itself, a very significant milestone in housing policy.
We will be watching closely to see how these policies are absorbed in a post-pandemic world, after being put on hold for months.
The intention of these regulations is to strike a balance between respecting a property owner's right to generate income while ensuring there is an adequate supply of affordable rental housing in the city. In the end, the tribunal upheld the original decision, which more heavily regulates rental restrictions on short-term rental properties.
As a result of the tribunal’s decision, it was expected that 5,000 of Toronto’s 21,000+ Airbnb rental units would return to the long term rental market by the end of this year, which is good news for renters who have seen market rents skyrocket over the past few years.
According to the tribunal, one of the biggest deciding factors was the simple realization that for every short-term unit that is available, a long-term rental household is displaced. Even more disconcerting, is the fact that many of these short-term rental units occupy purpose-built construction, intended to assist with increasing rental supply - which was shrinking an already razor-thin vacancy rate. And what happens when supply is out of whack with demand? Affordability takes a monster hit!
Now, after COVID-19 revealed itself as a global problem, it's being suggested that a great number of previously-rented units will not remain in the rental sector at all; pundits predict thousands of rental properties will come up for sale, as the pandemic continues to put a strain on people's mortgages.
Short-Term Rental Market: The Numbers
The proliferation of the short-term rental market in Canada has had a real and meaningful impact. A study from McGill referenced in this article “Airbnb Likely Removed 31,000 Homes From Canada’s Rental Market, Study Finds” showed that, in 2018, 31,000 homes across Canada were rented out often enough through short-term rentals that they were effectively removed from the long-term rental supply pool. This works out to 1.5 per cent of homes built in Canada intended for rental units.
The study based its findings on entire-home listings that were available for rent for at least six months- and that were actually rented out for at least 90 nights. The assumption is that a long-term rental wouldn’t be able to operate in an arrangement like this.
Click here to read a similar study that was conducted in 2017 “Short-Term Cities: Airbnb's Impact On Canadian Housing Markets”.
Analysts have long purported that rental supply far lags behind demand, especially in Toronto, where strong immigration, robust local economy and continued strong employment continue to add to the rental pool.
Short-term rentals, though platforms like Airbnb and VRBO have absolutely exploded over the last few years. And it’s no wonder. They are profitable. There was an increase in Airbnb listings from 2017 to 2018 of 25 per cent; during the same time period, revenues increased by a whopping 40 per cent to $1.8-billion.
In addition to the money, one of the reasons Airbnb exploded is that hosts prefer the lower maintenance arrangements that coincide with short- term rentals, which are often far easier to manage than maintaining longer-term rental contracts under the current system. Why? Because the Residential Tenancies Act is designed to favour tenants, such that if a landlord rents to a bad tenant who is problematic, in arrears, or grifting the system, it can be very challenging, costly and time-consuming to get vacant possession. Click here to read my post about the challenges of being a landlord in "The Other Side of Rent Control and Toronto Real Estate".
Toronto Should Watch And Learn
Over a year after Vancouver introduced their own similar bylaws, reports are that there are some issues with the enforcement of the bylaws and that Airbnb hosts are identifying and using loopholes as a workaround. Regardless, policymakers say that the regulatory framework is sound. Although it’s not perfect, it has succeeded in returning a significant number of rental units back into the supply pool. This is a good cautionary tale for Toronto, facing similar challenges.
There may still be challenges for Toronto, as well, particulary as the eceonomy recovers from COVID-19.
For example, a lot of Toronto homes have illegal basement apartments which owners removed from the long-term affordable rental housing supply for use as short-term furnished rentals. While there is some expectation that these might be returned to the unfurnished rental pool, the opportunity exists for Airbnb hosts to continue renting out these lower-level basement suites by simply removing the stove and calling it part of their house. The city is in no way able to force property owners to do otherwise because technically most basement apartments in Toronto are not legal secondary suites, by zoning or by building code. In fact, this situation goes for any secondary (or more) suite(s) in single-family dwellings that are not legal. Click here to read “How Have Vancouver's Airbnb Rules Affected The Housing Market?”
Owning real estate goes far beyond the transaction. It can be helpful when you are making decisions to play out potential scenarios for your tenure as a homeowner, like revenue generation. And, of course, good decisions are made with throughout research, patience and guidance from someone who has the experience to have solid foresight into the market. We are here to help!
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With a multi-disciplinary education in housing - and 27 years experience in the property market - I believe the search for a property requires aligning with you physically, mentally, emotionally and spiritually. This includes my commitment to share my opinion when I question whether a property might not be your ideal. It's how I became renown as the "realtor who mostly talks you out of buying a property until the right one comes along".
Did you enjoy this or find it helpful? Here are some of my past posts on Toronto real estate, including two about Short-Term Rentals:
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Thanks for reading!
-The Urbaneer Team
Steven Fudge, Sales Representative
& The Innovative Urbaneer Team
Bosley Real Estate Ltd., Brokerage - (416) 322-8000
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*Love Canadian Housing? Check out Steve's University Student Mentorship site called Houseporn.ca which focuses on architecture, landscape, design, products and real estate in Canada.