How Do Short-Term Rentals Affect the Housing Market?

Short-Term Rentals in Toronto

If you are a Toronto resident, you’ve might caught wind of the recent news around short-term rentals in Toronto. Specifically, we’re talking about the Local Planning Appeal Tribunal’s (LPAT) recent appeal to the Toronto City Council’s short-term rental rules approved last year. 

And if you haven’t, well, here’s a cursory scan of recent media coverage, along with extensive market research. This will bring you up to speed and help provide an understanding of how the outcome of this six-day hearing might affect you.

The Background Story on Toronto’s Short-Term Rentals 

On December 7, 2017, and January 31, 2018, Toronto City Council approved the regulation of short-term rentals via a zoning by-law amendment. Short-term rental use across the City of Toronto is legal in meeting three simple home-sharing conditions:

1. Properties must be the host’s principal residence (i.e., no multiple entire homes listings by a single host);
2. A host’s can only rent their entire home up to a maximum of 180 cumulative days in a calendar year; and,
3. No more than a total of three private room listings per host.

However, these new zoning by-laws were immediately appealed to the LPAT – formerly the Ontario Municipal Board (OMB) – by Airbnb hosts. Following an adjournment in October 2018, the hearing was scheduled to commence on August 26, 2019. 

While we await a final decision from the Tribunal, it is essential to understand how we arrived here. And ultimately, where we are headed if the appeal is approved.

How We Got Here

Airbnb has always been a trailblazer in the sharing economy, cultivating notions of great opportunity and financial incentives; all the while, enticing travelers with more affordable, authentic alternatives to a staid hotel experience. Currently valued at $41 billion worldwide, and operations in more than 81,000 cities, including Toronto, Airbnb’s growth has been exponential. But, with prevalence outpacing regulation, there come economic consequences.

Did you know? Toronto now has the most significant number of Airbnb listings in Canada, recently surpassing Montreal. And the majority of these listings are private homes vs. individual rooms.

As Airbnb’s burgeoning popularity continues to grow in the City of Toronto, so too have the number of commercial hosts (absentee landlords) capitalizing on the online platform. Not to mention, the profits they are yielding as a result. These commercial hosts are purchasing multiple properties with the sole intention of offering them exclusively for short-term rentals.

And who can blame them? After all, a homeowner capitalizing on short-term platforms such as Airbnb can evade a plethora of regulatory obligations and legal responsibilities. For example, circumventing Ontario’s Residential Tenancies Act. And, they generate double, triple or even four times as much in monthly rental income.

Currently, commercial hosts manage 42% of Airbnb’s 19,255 listings in Toronto. This totals to roughly 6,500 units that are no longer on the long-term housing markets, according to a recent report by Fairbnb – a lobbyist group made up of housing activists and the hospitality industry. These are properties that otherwise could be used to house individuals who live and work in the city vs tourists and transients coming from the surrounding suburbs to stay the weekend.

The Problem With Short-Term Rentals for Toronto’s Housing Market

So, what’s the problem? Toronto is one of the most competitive rental markets. On top of this, housing affordability is a growing issue. It’s absorbing housing stock in short-term rentals (a market that predominantly satisfies tourists). This only results in a shrinkage in the number of affordable long-term rentals, and disproportionately harms young locals.

Currently, Toronto’s rental vacancy rate is 1.1%. In condo units specifically, (arguably the most popular offering on Airbnb) the vacancy rate is even lower, sitting at 0.7%. As of right now, Toronto rentals are scarcer than they have been, on average, for the last decade.

To add insult to injury, rising interest rates and tighter federal mortgage qualification rules have turned many would-be buyers into renters, and for longer, adding further pressure on long-term leasing demand. So, even introducing a small fraction of these 6,500 units into the long-term rental market would considerably alleviate some of the influencing pressures adding to Toronto’s housing crisis.

To be clear, Airbnb and other home-sharing services did not create this problem. A lack of adequate urban policy and planning, population booms fueled by rising immigration levels, unprecedented doses of government intervention, and a tech boom that rivals U.S. hubs have created the tightest rental and resale market Toronto has seen in years. And experts attest that home-sharing services exacerbate these issues. This in turn creates other related problems, and right now, there’s nothing stopping this from getting worse.

The Immediate Effects of Short-Term Commercial Hosting 

The City’s politicians have received a litany of complaints from homeowners and long-term tenants alike who have witnessed Airbnb negatively impact the landscape of their streets and buildings, altering the reasonable enjoyment of their own properties. Some residents have recounted nightmarish stories describing forced evictions from landlords wishing to convert their properties into “ghost-hotels”. This refers to no front desk or staff, just a “ghostly” online check-in process. Or, regular disruptions to property owners by rowdy parties and substance abuse from neighbouring tenants of these types of rentals. Some have even been forced to sell their homes as a result of being in proximity to one or two dedicated Airbnb properties.

As a result, the City of Toronto has been trying to rein in the short-term “Commercial Hosting” trend. And when the new short-term rental rules were initially approved last year, this framework was aimed to focus specifically on those commercial hosts running these “ghost hotels” and eliminating all secondary suite listings on the platform.

Why Should Toronto Protect Secondary Suites?

Secondary suites such as basement apartments and laneway housing are a widely recognized form of affordable rentals available to low and moderate-income households. According to Fairbnb’s report, it is currently estimated that about one-fifth of the city’s rental stock is in the form of secondary suites in principal residences. Allowing Airbnb access to this housing type puts tourists in direct competition with households relying on this source of rental housing.

Fairbnb adds that, “Toronto, like other Canadian cities, has permitted secondary suites as a tool to create more affordable housing options, not to supply tourists with accommodation and global corporations with ghost hotel inventory. Allowing short-term rental platforms access to this housing form runs counter to the intent of permitting and legalizing secondary suites in the first place”.

Instead of adding more rental housing inventory to the market, it will decrease it. And, it’ll reduce housing options for Toronto’s low and moderate-income households.

Affordability and Availability Impact on Housing in Toronto

Although commercial hosts only make up less than a third of Airbnb hosts, they generate an outsized 73 percent of total revenue in Toronto, according to Fairbnb. Eliminating landlords with multiple listings that violate provisions requiring short-term rental hosts to be a principal occupant will:

1. Re-introduce demand for those who do fall within the regulation; and
2. Encourage more supply of long-term rentals to those who want to stay in the city.

It’s true that if the approved rules stay in place, there will always be loopholes. Commercial hosts will simply turn to another platform. However, it is still a step in the right direction for encouraging more inventory into a supply-constrained housing market.

While the sharing economy can be beneficial to individuals and allows homeowners to maximize their values from a little side-hustle, it should never be the case that Airbnb adversely impacts the availability of valuable housing inventory for end-users and long-term tenants alike; and yet, it is.

Airbnb listings for entire homes in Toronto make up as much as 0.8% of all the city’s private dwellings. Urban planning expert, McGill University professor, David Wachsmuth says, that’s still enough of the market to have a “serious impact” on the affordability and availability of housing in Toronto. Wachsmuth is one of the players appearing at the hearing has done extensive research into the impact of Airbnb on Canada’s housing market. Wachsmuth recently published a comprehensive report on the subject, encouraging regulation according to three simple principles:

1. One host, one rental
2. No full-time, entire-home rentals; and
3. Platforms should be responsible for enforcement.

So, What’s Next for Short-Term Rentals in Toronto?

We have an average of 100,000 new immigrants moving to our City every single year. Not to mention, 50% of all immigrants who move to Canada come to Toronto first. All of these people need somewhere to live. And, the demand for housing is not going to let-up any time soon.

It’s simple economics – dwindling supply paired with rising demand results in a higher equilibrium price point. We’ve said it many times, and our opinion does not falter. The only solution for improving Toronto’s housing crisis is to focus on implementing and introducing more supply into our markets. If the Airbnb appeal is denied, the return of long-term rental supply will double the number of available apartments for lease (existing inventory). This in turn, increases housing options for Toronto’s low and moderate-income households. Ultimately, this will have a significant impact on mitigating Toronto’s scarce supply levels.

Have an opinion on the matter? Let us know in the comments below.

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This article is written by Urban enthusiast and food/travel junkie, Jessica Elizabeth Spillas. As the firm’s multi-talented Business Development Manager and Sales Representative, she is able to pair her passionate approach to buying, selling and investing in Toronto Real Estate with her flair for design and digital marketing. With this in mind, Jessica delivers unparalleled service with every interaction and works hard to keep her clients and colleagues organized and working at top-notch efficiency.