Short-Term Rentals

Toronto Tries to Regulate

By Erica Rascón on Sep 26, 2017 in News

The City of Toronto has proposed new regulations for the short-term rental market. The proposed changes will affect owners of short-term rentals, rental agencies such as Airbnb, as well as hospitality and multifamily specialists. The City of Toronto is the first Canadian city to draft policy for this sector of the hospitality industry.

Hosts and renters alike have known that regulations for the short-term rental market were inevitable. According to an Ipsos Public Affairs survey, 74 percent of Toronto residents believe short-term rentals should be permitted with some regulations.

The Need for Change

Several factors contribute to the need for new legislation regarding short-term rentals. Four issues top The City of Toronto’s list of motivating factors.

1. Housing Shortage

Population growth has outpaced the construction of new homes in Toronto, resulting in a housing shortage and affordability crisis. CMHC Rental Market for 2015 reports that a healthy vacancy rate is about 3 percent. Toronto’s vacancy rate is 1.6 .

The lack of supply directly affects affordability. The Brooke Amendment to the 1968 Housing and Urban Development Act established a standard that is honored throughout much of North America. The Amendment stipulates that allotting more than 30 percent of household income towards housing is a measure of housing unaffordability. The City of Toronto cites the following CMHC data: 28 percent of owners spend a third or more of their income on housing, while 44 percent of renters spend 30 percent or more.

The City of Toronto is exploring the connection between the short-term rental housing and the shortage of available housing stock.

2. Hospitality Plateau

EX26.3, a document that details the proposed regulations for short-term rentals, provides an overview of the proposed changes. It states, “Growth in the short-term rental market may be one of the factors contributing to the current stagnation in the number of hotel rooms in the city. This is a concern because the traditional accommodations sector is an important contributor to the local economy. Also, if jobs in the hotel industry were replaced with jobs in the short-term rental industry, there may be fewer jobs in total and/or the jobs may be more precarious.”

Changes to the types of properties that qualify for short-term rentals may redirect traffic towards traditional accommodations.

The stagnation does not seem to equally affect all areas of hospitality. Doug Hart, co-owner of Rose Garden Bed and Breakfast in downtown Toronto, has enjoyed an occupancy rate of roughly 95 percent for several years.

“The market is very big for tourism in Toronto, especially in the summer,” says Hart in an interview with The Balance Sheet. “I’m amazed at the demand. I don’t think short-term rentals are hurting anyone in the bed and breakfast area. I don’t think that it has any impact on our business at all because the demand is so significant.”

3. Multifamily Stability

Short-term rentals are a hot issue amongst condominium corporations or owners. In many cases, condo corporations’ by-laws curtail units from being used as short-term rentals.

At other properties, the short-term rentals are not expressly forbidden but rising concerns have brought the issue to the forefront of meetings. Most corporations require at least 80 percent consent to amend condo by-laws, a majority that is difficult to obtain if a notable portion of owners would like to rent out their condominium or any space within it.

Melissa James has rented out her condominium on King Street West since 2012. It was her family’s primary residence for 12 years before they decided to get a second place nearby. The James family listed their condominium on Airbnb as an economic opportunity.

James tells The Balance Sheet, “Airbnb allows us to keep paying for our property – without it we wouldn’t be able to pay the bills associated with keeping it with a regular tenant. The rents are high but not as high as our current costs.”

4. Criminal Concerns

There is a low but growing number of criminal occurrences related to short-term rentals. Toronto Police Services found 116 criminal occurrences between January 1, 2014, and December 31, 2016 that mentioned short-term rental agencies. Operators or guests related more than 50 percent of criminal occurrences to fraud. Damage or theft of property accounted for 42 percent of reports.

Municipal Licensing and Standards (ML&S) department also received more complaints last year, registering 257 complaints related to 213 short-term rental properties between January 1, 2014, and May 31, 2017. About 8 percent of calls were related to noise, 5 percent regarding property safety and standards, and 2 percent regarding garbage and waste. Short-term rental guests’ parties were often the catalysts of the complaints.

“Sometimes there are bad guests,” says James. “We’ve had two parties. The guests were young men that live in the outer suburbs that came into the city to go clubbing and then keep the party going at our loft. Our neighbours were disturbed because of the noise – people coming and going at all hours, loud music. Out of nearly 200 guests though, we have only had three bad experiences overall. I think those are excellent odds for any business. Having said that, I think a little more regulation is in order. Specifically the ‘problem’ listings that are repeatedly allowing disruption to neighbours.”

By comparison, ML&S received 118 complaints related to 75 hotels, motels and B&Bs over the same period.

Proposed Changes

The new bill proposes these key changes.

1. Principal Residences Only

First, the bill will amend the City’s zoning bylaws to create a new land use called “short-term rental.” These properties must be the principal residence of the owner. Contracts for short-term rentals may last up to 28 consecutive days.

Currently, approximately 3,200 short-term properties are not the owner’s principal residence. City Counselors anticipate that the affected units would be sold or rented long-term, potentially doubling the current available housing stock in Toronto and notably increasing the vacancy rates.

James’s Airbnb rental is technically not a primary property. Though she has mail delivered there, she and her family spend most of their time at another Toronto home.

“I definitely don’t want to be shut down on a technicality. I enjoy the business and the aspect of hospitality,” she says.

The hosts of more than 7,600 Toronto short-term rental properties would not be affected by this change since their rentals are their primary residence.

2. Official Registries

The City proposes two official registries for short-term rentals.

Agency Official Registry

The first requires any agencies that facilitate short-term rental activity to register and receive a license to operate in Toronto. The license fee would cost between $5,000 – $20,000, scalable based on the number of nights rented or listings hosted through the company.

Owner Official Registry

The second is a registry for short-term rental owners. To register, property owners must submit personal and property information to the City and pay a registration fee, currently slated for $100. Registered listings would fall under the recently adopted EX22.2 2017 Operating and Capital Budget. Registered properties are subject to a short-term rental tax by the City of Toronto, at rates up to 10 percent of short- term rental revenues. The legislation will be implemented “as soon as practical in 2017” per EX26.3.

Advocates of the regulations feel that registration and taxation generates additional revenue for The City while protecting tourists from owner fraud. The registration also ensures that properties are safe for guests, abiding by local building and fire codes.

The registry would give authorities a clearer picture of the active properties in the short-term rental market. This new transparency may promote compliance to condominium bylaws that are currently unreinforced. Restrictions on how a property owner can use their property will, of course, be met with mixed feelings.

“If someone is respectful of others, they should be able to use their property as they wish,” shrugs Hart. “It seems a bit intrusive as a law. I can understand condo boards getting fed up with certain problems but that’s a secondary question. But no laws are perfect,” he concludes.

The City of Toronto will seek public and stakeholder input on the proposed short-term rental regulations throughout the third quarter of 2017. Final recommendations will be made and presented to the public during the fourth quarter.