New Airbnb Rules Shakes Up Toronto’s Investment Market

Gta-homes.com
Nov. 28, 2019
Charles Liu

It is the end of an era for Airbnb rentals in Toronto. Due to a recent court ruling, Toronto real estate investment properties can no longer be used for short-term rental accommodations. The new Airbnb rules will fundamentally change the way Toronto real estate investors are allowed to use their condominium properties.

The Local Planning and Appeal Tribunal (LPAT) has ruled in favour of having stricter regulations for Toronto short-term rental accommodations. The ruling ends a two-year appeal by online lodging broker Airbnb after Toronto approved the by-law in December 2017.

New Airbnb Rules
According to the November 18 decision, only primary residences are permitted for use as short-term rental accommodations. This means short-term rental operators must live in the same place as their rental accommodations.

Secondary suites such as basement apartments or non-primary residences can not serve as short-term rental accommodations.

The new by-law allows homeowners to rent out a maximum of three bedrooms of their homes for stays fewer than 28 consecutive days.

Landlords are allowed to rent out their entire homes on a short-term basis provided they are not present, and then only up to a maximum of 180 nights annually.

The new Airbnb rules state Toronto short-term rental operators must register their properties with the city and pay a one-time fee of $50. Not only that, all short-term rental stays are now subject to a 4 percent Municipal Accommodation Tax (MAT).

Short-term rental platforms like Airbnb will have to pay a one-time license application fee of $5,000. They will be charged $1 for every night booked through the company. To help expedite tax collecting, companies will be allowed to collect MAT on behalf of their clients.

Implementation to Come
These rules effectively put an end to investing in additional homes for the purpose of renting them out for short-term stays. Previous estimates say over a third of Toronto’s 21,000 Airbnb listings will disappear under the new Airbnb rules.

If you are currently an operator of a short-term rental accommodation, you aren’t obligated to do anything--for now. The city said it will reveal more information in December regarding registration, a timeline, and licensing.

At present, there is no word regarding how the city will enforce this by-law or what penalties will befall non-compliant landlords. A November 2017 report estimated the by-law would require an operating budget of $1.18 million for five full-time staff. It would also need a one-time expense of $905,000 to pay for three city workers. Enforcement is expected to rely on complaints from the public.

Some 5,000 living units are expected to return to the long-term rental market as a result of the new by-law. This influx of homes will likely help improve Toronto’s poor vacancy rate of just 1.1 percent despite a continual increase of rental costs.

Media Notoriety
Toronto is Canada’s largest market for short-term rental accommodations. Much of Airbnb's annual revenue of $214 million comes from downtown Toronto rentals.

The city’s highest concentration of Airbnb homes are located in the Waterfront Communities --The Island. Here, 5.3 percent of all local dwellings are listed on the global home-sharing platform, taking Toronto Airbnb apartments to fifth position on a national scale.

Recently in the media, short-term rental accommodations have been likened to “ghost hotels” where guests are allowed to act indulgently without limits. One common trend sees clients use their Airbnb rentals as a place to host parties, sometimes to the irritation of neighbouring residents. Last year, the waterfront’s Ice Condos received 311 complaints regarding short-term rentals.

For its part, Airbnb headquarters has endeavored to improve its public image. It has cracked down on party rentals with its “party house rapid response team.” It also suspended one of its biggest hosts once it was revealed he was relisting properties and misleading guests.

However, some municipalities have had enough and are implementing their own Airbnb rules.

Airbnb Rules by Region
Still interested in buying a condo to rent out as an Airbnb house? Here’s how different GTA cities are dealing with short-term rental accommodations:

Mississauga is by far the most agreeable GTA municipality when it comes to Airbnb rules. The west Toronto gateway city will allow short-term accommodations, but only under specific conditions. Operators are required to submit a minor variance or rezoning application that permits public input into the approval process.
Meanwhile, Markham has come down hard against Airbnb rooms and houses. Applicants must apply for municipal amendments that are difficult and expensive, a process that will cost around $45,000. For all their trouble, successful applicants will be allowed to host a short-term rental lasting 60 days per year at most.

Oakville by-laws are similar to Toronto’s in that they require Airbnb hosts to live in the same place as their rental properties. And yet, while this also means licensing and registration, the city is not restricting the use of 300 legal secondary suites as Airbnb listings.

Vaughan looks to approve regulations in December that will restrict Airbnb rentals to one per property, and only for principal residences. Of special note is a proposal that would implement a sliding fee structure ranging between $500 and $10,000 that depends on the number of properties involved.

Burlington, Newmarket, Oshawa and Richmond Hill are all in the process of considering new Airbnb rules.

After a legal process that took years to complete, the new Toronto Airbnb regulations have become part of a trend that has seen other Canadian cities crack down on short-term rental regulations. Vancouver and Montreal have implemented Airbnb rules of their own while Ottawa looks to join them in the future.

Despite being dominated by Airbnb Inc, the short-term rental market is an extremely competitive business. Other short-term rental platforms operating in Toronto include VRBO, Expedia, HomeAway, and FlipKey.

The TPAT ruling allows for an appeal within 15 days, so it’s entirely possible we’ll soon see an Airbnb appeal. And yet, while it will continue to exist, the Toronto Airbnb community won’t be the same after this.

As it is now, Airbnb in Toronto is no longer a viable option for local condo investors. Instead of short-term rentals, investors should now turn to long-term renters for their rental properties.

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