Well, today we get to talk about a bit more of a “charged” topic, but it’s one that needs addressing and also one, that I myself had questions on. And that is, the changes to the AirBNB legisltation! If you haven’t heard, the Federal Government has made some moves against AirBNB.
On November 22, The Canadian Government implemented tax measures specifically targeting AirBNB owners. The goal (as they said) was aimed at alleviating a severe shortage of rental housing. The only way that the Fed can truly attack short term rentals in Canada, is tricky. Because this is a property issue, and properties fall under provincial and municipal rules. But they found a way – through the CRA. There were a few measures suggested which included:
- Restricting income tax deductions on short-term rentals provided by services such as Airbnb Inc and VRBO
- Enacting similar laws as introduced in other countries
We have seen other countries enforce some strict AirBNB policies, including Spain, France and Australia. We’ve even heard about it from major cities like New York, Las Vegas, and Singapore.
Effective from January 1, the new rules apply in provinces and municipalities that already restrict or prohibit short-term rentals are going to be hit harder. They will no longer be able to deduct their rental expenses against income. We aren’t just talking costs of upkeeping the properties, we are talking interest expenses, depreciation, etc.
In major cities such as Montréal, Toronto, and Vancouver, an estimated 18,900 homes were utilized as short-term rental properties in 2020, a number likely to have increased since then. Although, AirBNB says its rental rates in Southern Ontario are down.
Nathan Rotman, Airbnb's policy lead for Canada, argued against home-sharing regulations as a solution to Canada's housing crisis, emphasizing that the majority of Airbnb hosts share a single home to supplement their income, representing less than 1 per cent of the country's housing stock.
In a move to enable municipal enforcement of short-term rental restrictions, the Canadian government plans to allocate C$50 million over three years starting in 2024. We have already seen some attempts at managing the issue such as regulatory measures in various cities, including requirements for hosts to obtain licenses and pay registration fees.
Canada's housing market has struggled to keep pace with the country's immigration-driven population growth. We continue to see short-sighted policies such as Foreign Buyer Bans, (which has nearly completely fallen apart now), and other measures to try and give the impression that we are doing something to address the issue, we are treating a symptom, and not the underlying problem, in my opinion. We are in no way arriving at a comprehensive solution to the housing shortage.
And that problem comes up again and again – a lack of housing, and not just affordable housing. We still have nowhere near the housing starts we need in Canada to hit the projected demand over the next decade. Demand has outstripped the supply.
There are rational exemptions, similar to what we saw in other countries. If a portion of the property is owner-occupied – you rent out a room, an in-law suite, etc. you are still going to be fine. But independent property that you are renting for profit, as if it were a hotel, you are going to be taxed out the wazoo. Top of Form
But the message is clear – the Governments are angling to persecute short term rentals, such as AirBNB at ALL LEVELS. What I predict:
- We will see some Airbnb operators continue to cheat. It will be interesting to see how far that $50 million enforcement offer from the federal government goes.
- Many short term rental owners will come to believe the end is near and that they should sell now.
- We will likely start to see some “creative” ways around the new tax laws too.
Just as an aside, I do understand the limitations in cities like Toronto and Vancouver, where a condominium is truly being used as a hotel suite, and neighbouring residents don’t enjoy the constant traffic. But what about destinations that are truly for that of tourists. Beach towns, cottages, etc. Areas that were never seeing long-term tenancies. How do we deal with one and not the other, with these types of policies? Minimal impact on the “real problem” but gives the impression that the government is doing something to help. Interestingly, Ottawa noted that short term rentals provided a benefit in the rural zoning areas and have a specific exemption for them. The new rules could undermine areas such as this, though.
There are positives and negatives with Short Term Rentals. Positives being:
- Providing accommodation to guests where amenities are closer than some hotels (often kms away)
- Giving flexibility to families
- Providing a different experience for out of town visitors; etc.
Negative examples include:
- Party houses
- Lack of enforcement of OBC and fire safety rules.
The negative ones are the ones that I think should be targeted instead. But you can’t, with an overarching policy aimed at deterring all by way of taxes.
What is frustrating, is how reactive we are. I understand, we are slow to catch on, especially in tech-startups, where things do tend to escalate much more quickly. But the issue is going to continue to come back, again and again to the lack of housing supply. It has been a recurring theme for years now, just made more prominent in the heights of the pandemic. But let’s revisit that the Canada Mortgage and Housing Corporation (CMHC) estimates that the country needs to build 3.5 million more housing units by 2030 to meet the increasing demand, driven in part by record immigration. Keep in mind that many in the mortgage industry identified the looming housing shortage first in 2009. We have also not seen a reduction in egregious development fees and costs. In fact, they have increased in Manitoba. We also have not seen a lightening of the permitting process here.
What we need are long-term solutions. Incentives for building and development that can accommodate the increasing population. Then, and only then, will we truly see supply that meets the demand.
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