Brief History of Short Term Rentals - Toronto Edition
There’s been a lot of media attention recently focused on short term rentals in Toronto and now the City of Toronto is trying to regulate them. But how did this all start? And what is a “short term” rental exactly? And why is the city spending all this money and resources trying to regulate?
The definition of a short-term rental, according to the city of Toronto is a rental period less than 28 days. However, most people use the term “short term rental” very loosely…depending on who you talk to, it could mean anything less than 12 months. With global mobility on the rise, 2 to 3 month “short term rentals” are very common nowadays, especially for people who travel for work. These tenants prefer turnkey furnished condos instead of hotel rooms. Condo buildings also have their own set of rules and definitions for “short term rentals.” Depending on the building, a short term rental may be considered anything from one day to anything less than a year. It’s important to understand these definitions and how they affect you.
The Airbnb and Sharing Economy Movement
In the past 6 years, short term rentals (that is, rentals less than 28 days) have become more popular due to websites like Airbnb, and the growth of the sharing economy. Home and condo owners are using this to supplement their income and pay down their mortgages. Is this a bad thing? No, but what was initially intended to be a couch sharing service has turned into a giant corporation that now operates in every major city around the world. The hotel industry is definitely feeling the squeeze (much like horse carriage companies in the early 1900’s). Hotels have spent millions lobbying local governments to “level the playing field”. There have also been mounting complaints from condo residents about disruptions and compromised security due to Airbnb. And last but not least, social activists and others concerned about affordable housing are pushing back against the housing drain caused by Airbnb properties being taken off the regular rental market. All of this has caused the city of Toronto and other major cities around the world to implement tighter controls on short-term rentals.
The Toronto Regulations:
1. Short term is defined as any rental period less than 28 days
2. You are only allowed short-term rentals for your principal residence (no investment properties)
3. Short term rentals are limited to 180 nights per year
4. There is a 4% tax that must be paid on rent
5. You must register with the city and pay an annual $50 registration fee
These are the new proposed regulations for the city of Toronto and the city and other stakeholders will meet Aug 31st to decide the fate of Airbnb owners and operators. If passed, what does this mean for you, the Airbnb owner?
So, if you are currently renting out your investment property via Airbnb (or other similar websites) for periods of less than 28 days, you may need to change the way you rent your property or risk some heavy government fines. Actually, you may not even have a choice – Airbnb is gearing up to help enforce the new regulations by sharing information with the City and removing any listings that don’t meet the requirements. Something similar happened in San Francisco a few years ago and it cut the number of Airbnb listings in that city by half. Vancouver has reported a 47% decrease in Airbnb listings (6,600 down to 3,700) post regulation largely attributable to the aggressive action taken by local government (hundreds of fines already issued to owners) and cooperation with Airbnb. Airbnb alone deactivated 2,500 listings in Vancouver that did not have a posted business number.
So, if your property is no longer eligible by city definitions (we suspect most properties will fail the primary residence test) what are the alternatives?
You can rent out through the MLS. There are a bunch of problems with this choice: - Having to pay realtor transaction fees - MLS isn’t designed well for managing and listing furnished properties. - The scariest…..Rent control laws which the government of Ontario has issued province wide. Your tenants may never leave once they move in .
Maybe a better option (given you already spent all this money on furniture) and an option most people are unaware is corporate housing. What is corporate housing, and how can individual investors benefit? Many companies in the corporate housing market mostly service tenants travelling for work (with those 2-3 month stays we mentioned earlier) which don’t fall under the city’s short term rental definition and rules. The properties in corporate housing inventory are professionally and actively managed, meaning less work for you the owner. Owners also benefit from higher rental rates charged to corporate tenants (content).
Whatever you do, consider asking the experts. We can help navigate you through your condo bylaws/rules, the proposed legislation as well as find suitable rental options your property.
Check out our infographic explaining how to abide by the new rules.