In last Thursday’s blog post, I briefly touched on the subject of AirBnB, so briefly, in fact, that it almost necessitated an entire follow-up blog.
Many of the readers commented that they wouldn’t want to live in a condominium that allows AirBnB, which I find ironic, given the massive push by investors and owners alike to either have their condos allow short-term rentals, or to simply illegally rent out their units.
Today, I want to highlight a few recent articles about how AirBnB’s have affected Toronto, and then, as is so, so often the case on this blog, delve off into the politics involved with both current short-term rental regulations, and potential future ones down the line…
Show me a government that doesn’t love a tax, and I’ll show you a government that won’t succeed.
I may have done my Grade-Eight school project on the Liberal Party of Canada, back when a new guy on the scene named Jean Chretien was running for Prime Minister, but I am not a fan of the party in 2017, as my regular readers will know.
Tax and spend. It’s not a cliché, and it’s not an exaggeration; it’s a platform.
So when Kathleen Wynne introduced her completely useless “Fair Housing Plan” back in April, I was shocked that she didn’t include a tax on short-term rentals!
A good politician is one that can invent new taxes out of thin air. Potato-chip-tax, toilet-flushing-tax, stepping-on-a-side-walk-crack tax – all solid new ways to generate revenue.
So why in the world did it take so long for the government to profit from short-term rentals in Toronto?
There are those that think we have a “problem” with short-term rentals in Toronto, and those that think it’s fair game. Either way, the solution, as is always the case in Ontario, is for the government to claim regulations are needed, and knight themselves the regulator, overseer, and rule-maker, while implementing new taxes in the process.
This past June, it finally happened; the municipal government finally stepped up to deal with the “problem” of short-term rentals by…..wait for it……….requiring hosts to register with the city and pay fees.
Well if that isn’t the way to deal with short-term rentals, then I don’t know what is!
Kidding aside, the city of Toronto released a Staff Report on June 7th called “Proposed Regulations For Short-Term Rentals,”, whereby they proposed four new regulations:
1) Amend the City’s zoning bylaws to create a new land use called “short-term rental” that is permitted in principal residences across the city,
2) Prohibit short-term rentals that are not in a person’s principal residence.
3) License companies that facilitate short-term rental activity, like Airbnb.
4) Create a registry for anyone who operates a short-term rental in their home.
#1, #2, and #4 are all within the municipal government’s power.
But #3 is very interesting, since there is no guarantee that AirBnB will play ball. More on this on Wednesday, where I’ll show you a North American city which is calling itself “the model” for short-term rental regulation, and has a deal in place with AirBnB.
How does the city of Toronto define a “short-term rental?” As follow:
A short-term rental is any rental of a residential unit lasting up to 28 days in a row. The 28 day definition distinguishes short-term rentals from longer rentals (it is not a cap on the number of nights a home can be rented). Any rental that lasts 29 consecutive days or more would be considered a long-term rental. A more precise definition of short-term rental is discussed later in this report.
So we’re not talking about one-night AirBnB’s here, we’re talking about 4-week stays as well.
The staff report goes on to identify four areas of concern:
1) Housing availability and affordability. It comes as no surprise that taking housing stock out of the market, will decrease supply, and increase prices.
2) Neighbourhood and nuisance issues. Do you want to live next door to a 9-room house, full of tourists?
3) Economic development and tourism. How does this affect the hotel industry?
4) Taxation. Save the best for last, I suppose, but I would agree that short-term rental operators are not paying tax in the same way as their hotel-counterparts.
Regarding fees and licensing, the report suggested the following:
1) Registry fees of $40-$150 per home for short-term rental operators.
2) Licensing fees of $5,000-20,000 per night for commercial operators.
3) A 4% tax on registered short-term rental hosts operating out of their principal residences.
The report also recommended that the operator would have to post their license in any advertising for their short-term rental.
Since this report made its debut in June, the media has been abuzz with reports about short-term rentals in major Canadian cities.
I don’t think the staff report had anything to do with the buzz, but rather the city of Toronto managed to get out ahead of the storm that was brewing.
Short-term rentals are a problem in Montreal, Vancouver, and believe it or not – Saskatchewan too. Here’s some choice reading:
June 15th, 2017: “The Long-Term Problems of Short-Term Rentals In Montreal”
August 9th, 2017: “Here’s How AirBnB Is Making Your Montreal Rent More Expensive”
August 10th, 2017: “Illegal Short-Term Rentals Spawn Record Complaints In Vancouver”
August 12th, 2017: “Short-Term Rental Properties On The Rise In Saskatchewan”
As for Toronto, the buzz really started to pick up at the start of August.
And what “study” are they referring to in that last article?
This is where things get really interesting!
Last week, a research group from McGill University released a 48-page report entitled: “Short Term Cities: AirBnB’s Impact On Canada’s Housing Market.”
It takes a while to download, but trust me – it’s worth the read.
The results are what you might expect: that AirBnB rentals are taking long-term housing out of the market for residents in Vancouver, Toronto, and Montreal, and in cities where demand for housing already outpaces supply.
I know most of you won’t read the 48-page report, so here’s the executive summary:
Across the Montreal, Toronto and Vancouver regions, 81,000 Airbnb listings have been active at some point in the last year, and 51,000 in May 2017. Montreal had the largest number for most of the year, but Toronto is now taking first place. These listings are heavily concentrated in the central cities of the three CMAs, and they are growing rapidly; the three cities have experienced a 50% year-over-year increase. A majority of listings in all three cities are entire homes rather than private rooms.
Airbnb hosts in Canada’s largest three metropolitan regions earned a collective $430 million in revenue last year, an average of $5,300 per listing and a 55% increase over the year before. This growth is driven by Toronto, where total revenue nearly doubled year-over-year, and where average revenue per listing is also growing strongly. Revenue is highly concentrated among the most successful hosts; 10% of hosts earn a large majority of overall revenue.
There are now 13,700 entire homes rented 60 days or more per year on Airbnb in Montreal, Toronto and Vancouver, each of which is unlikely to be rented to long-term tenants. They account for one sixth of all Airbnb listings, and a majority of nights booked on the service. Even more worryingly, these listings are growing around 25% more rapidly than other categories of listings. Many neighbourhoods—above all in Montreal—have seen two or three percent of their entire housing stock converted to de facto hotels.
The report doesn’t draw the obvious conclusion: that short-term rentals have a direct impact on price.
From the report:
Airbnb has removed as many as 13,700 units of housing from rental markets in Montreal, Toronto and Vancouver. In some areas this represents more than two percent of the total housing stock—a number comparable to the rental vacancy rate in the three cities. In general, these are neighbourhoods with above average rents, but there are significant economic pressures threatening further conversions of long-term rentals to de-facto Airbnb hotels in a number of more affordable areas—particularly those lying on mass transit lines. In the last year, conversions to short-term rentals have outpaced new home construction in a number of neighbourhoods.
That paragraph is from the report’s section called, “Airbnb’s impact on rental housing,” and yet I can’t help but think that the effect AirBnB is having on the rental market is just as big as the market for properties being sold.
Any way you slice it, taking housing stock out of the market, for rent or for sale, is going to have an impact on price.
I put up a listing for lease last week for a 1-bed, den, 1-bath unit with parking, for $2,200 per month.
I ended up getting eight offers.
Five of the offers were from prospective tenants who hadn’t even seen the property. That is how competitive the rental market is out there.
One agent told me, “I won a 16-offer bidding war for a condo in Liberty Village last night.”
Another agent told me, “A kid in my office has lost nine offers for lease…………so far this week.”
Part of this has to do with the time of year. A lot of renters are looking for September 1st.
But as the McGill report clearly states, more than two percent of properties have been removed from the market due to short-term rentals, and I think that number is probably higher in downtown Toronto.
And when it comes to the sale of properties, the same argument can be made. The higher returns from short-term rentals are causing many operators to keep their properties, rather than selling them. No longer are investors looking to sell and take their profits, when they money flowing in from short-term rentals is probably 3-4 times what they’d get by leasing for a one-year term.
I think this McGill report is going to open a lot of eyes, and other major Canadian cities, and maybe even those in the United States, will take notice.
But I don’t think that taxation is the answer to the “problem” of short-term rentals, and I put problem in quotations, because, again, not everybody thinks this is a problem. Many people think we’re in a free market, and thus market participants should truly be free, without government intervention and regulation.
If the government does want to do something about the housing crisis – and yes, we’re bordering on crisis, then their staff reports should focus less on the amount of revenue raised from new taxes, and more on the potential number of properties to come onto the market, for lease and for sale, if and when they implement new policies, as well as how this will affect prices, and affordability.
On Wednesday, I’ll tell you about one of my favourite cities in the world, and how they have dealt with their own short-term rental crisis…