Three implications of the new Airbnb rules in Toronto

It’s been a rocky road for short-term rentals like Airbnbs in the City of Toronto.

Here’s a quick recap.

In early 2018, Toronto City Council approved the regulation of short-term rentals in Toronto, which would require short-term rental companies to obtain a licence and short-term rental operators to register with the City and pay a Municipal Accommodation Tax (MAT) of 4 per cent.

This amendment was appealed to the Local Planning Appeal Tribunal (LPAT) and as such did not go into force.  The hearing for the appeal took place in August, 2019, and the City just received a positive decision at the LPAT, meaning that short-term rental regulations will now come into effect.

If you’re interested in the specifics of the new rules, go directly to the source at the City of Toronto site.

Let’s add some analysis to the facts.  Here’s three interesting implications of the new rules.

Investors can’t have Airbnbs – but their tenants can.

In what is clearly an attempt to return some long-term rental units to the market, it is now illegal for investors to rent out units or houses for short-term periods.  You MUST live in the home.  By saying that only principal residences are permitted to be used as Airbnbs, the city is taking steps to deal with the common complaint that we’ve got fewer rentals in part because they’re being used as Airbnbs.

Interestingly, the city has extended that right to rent their place short-term to both the owner of the home as well as long-term tenants.  So, an investor rents out his property to a long-term tenant and that tenant can do short-term rentals just like an owner occupier can with the home.

It appears that the logic behind this is that we need to allow for occasional short-term rentals for everyone who is living in a home.  It comes with restrictions (maximum of 180 nights per year) but you can do it.  We will see what changes happen to leases to protect landlords from tenants who do so without making proper plans to accommodate such a change.

It’s gonna be easier to get an Airbnb in the winter – and during big events.

If we think through the likely result of the new rules, we’re going to see spikes in available Airbnbs in two ways.

First off, with homeowners or tenants only allowed to Airbnb their units for half the year, we will likely see snowbirds and other fair-weather Torontonians taking advantage of the ability to rent out their units while they are away.  With a system in place for marketing and booking your home relatively easily (and legally), the perceived risk of short-term rentals will be less.

The second way in which we’re going to see spikes in availability is during big events.  Whether it is annual events like the CNE, Pride week or Caribana, or with reoccurring sporting and entertainment events, we’ll see people cherry picking dates that allow them to get the most interest and therefore the highest price.  During these special event times, the number of Airbnbs will jump as homeowners and tenants who qualify to do so use up some of their allotted 180 days per year.

With many condo buildings outlawing Airbnbs and other short-term rentals, the properties that are closest to these entertainment and sports venues are not going to be able to take this approach.  While it may now be legal to have short-term rentals in Toronto, this doesn’t mean that condo buildings have to permit it within their units.

Here come the service providers!

The final implication of Airbnbs now being legal in Toronto has to do with the ancillary services we’re going to see pop up.  As homeowners and tenants begin registering for short-term rentals, we’re going to see service providers start to advertise helpful services.

The biggest one of these will likely be property managers to deal with getting Airbnb guests in and out of properties, answer questions and deal with problems, as well as clean up afterwards.  It seems reasonable to expect that such property managers will focus on certain geographic areas to offer these services, where they can benefit from having multiple listings they are managing on a semi-regular basis in the same neighbourhood.

The new rules are going to be controversial, as there are already lots of investors who are renting out Airbnbs that are now not in compliance with the law.  Enforcement, penalties and the effectiveness of the new rules overall will be worth keeping an eye on over the next few months.  Depending on the success of the enforcement of these rules, it is possible that we will see an increase in rental units returning to the long-term rental market.  Given the shortage within the city of Toronto, that would be very helpful.