‘just Trying to survive This year’
Grapp ling with new Airbnb rules and the Covid down turn, investors in short-term rentals are proceeding with caution
Five years ago, Pouneh Rouhani was attempting to launch a marketing agency from her 500- square- foot rental apartment in Liberty Village. Occasionally she’d sublet the place on Airbnb to fund the odd vacation. The marketing agency never took off, but the extra income Rouhani earned from short- term rentals gave the Rotman MBA grad an idea.
She called it Luloo Furnished Homes, and modelled it on a simple concept: she’d lease a condo, or take on a property- managing contract with a landlord, then put the unit on Airbnb, taking care of all the furnishings, bookings and post- stay cleanups. For the first few years, the concept was successful. Rouhani built a portfolio of 30 properties and was able to upgrade from her own tiny rental.
2020, however, has changed everything. First, the City of Toronto introduced new regulations to limit what landlords can list on Airbnb. Whole, unoccupied condo units are now only allowed for a maximum of 180 days per year, unless they are rented for longer than 28 days at a time. “We knew this was coming,” says Rouhani. “We shifted our leases to over 28 days.”
Then COVID- 19 hit. Between early April and early June, the province banned short- term rentals outright, except in the case of emergency housing. By June 5, Ontario Airbnbs were back up and running, but demand has been dampened by travel bans from other countries, weakened tourism and condo boards that have instituted residents- only policies — in some cases barring not only visitors but cleaners and dog walkers.
“We still have some bookings, including health- care workers who don’t want to live at home, couples who don’t want to live together anymore,” says Rouhani. “But really, we are just trying to survive this year.”
In the interim, some of the landlords Luloo Furnished Homes provides property management for have pulled out. “About 10 per cent have switched to long- term rentals,” says Rouhani. “Twenty to 30 per cent aren’t sure what to do, and 60 per cent are going to wait it out. They don’t want to have long-term tenants.”
What none can be sure of is how long that wait will be, creating risk not only for Airbnb operators like Luloo but for the real- estate investors who, according to Statscan, own 36.6 of the GTA’S available condo stock.
Toronto real estate agent Scott Ingram can easily imagine a scenario where the city’s new Airbnb rules, combined with a collapse in tourism due to COVID-19, will affect the condo investment game. “There’s no way taking away the short- term rental market will increase demand for resale condos,” he says. “Travel restrictions are also going to heavily impact rental- market demand since there’s going to be incoming foreign students, foreign workers and other immigrants in the near term.”
It’s a downward trend that was already in progress. Even before COVID- 19 hit, the city’s Airbnb regulations were aimed at eliminating so-called ghost hotels — condo towers operating as ad hoc Hiltons where the majority of units change hands every night or two.
Ghost hotels have been a boon for condo owners, who can earn double on Airbnb what they do through standard, long- term rental agreements. ( By January 2020, the average rent for a one- bedroom in the city was $ 2,300; rented on the shortterm market for $ 150 per night, that’s $ 4,500 at full capacity.) According to research by Mcgill University professor David Wachsmuth, there are 21,000 Airbnb units in Toronto. In some neighbourhoods, such as Trinity Bellwoods and the Entertainment District, five per cent of rentable housing is solely used for Airbnbs — a significant cache considering the city’s vacancy rate is hovering around one per cent.
As Ingram points out, the average price to buy an apartment in Toronto is just over $600,000. That leaves “a lot of more recent investors likely to be cashflow negative,” he says, “just banking on price appreciation to make things worth their while.” But COVID is tightening the screws.
“If they are under water by a few hundred a month, they might not be sweating it so much when they are working. But what if they lose their job? That becomes a lot tougher.”
Murtaza Haider, a professor at the Ted Rogers School of Management who focuses on real estate, notes both rental and resale prices have been softening. “Rental prices dropped .5 per cent in March, six per cent in April and .5 per cent in May,” he says. But he believes the dip will be temporary. “Those were the months when there was the most amount of panic,” he says. “I see prices levelling off in the summer as the economy reopens and rebounds.”
Haider also cautions against people hoping prices plummet. “People think a big drop will allow them to afford the home they have been waiting for,” he says. “It will also likely mean the economy has collapsed, putting extreme downward pressure on their jobs, their wages, their ability to afford anything.”
Part of what could be keeping rental prices high, and investors waiting for shortterm rentals to rebound, is the lack of certainty around the city’s rules. A number of landlords are appealing the 180- day rental- maximum bylaw before the Local Planning Appeal Tribunal (LPAT). Others point out the rules aren’t being enforced or
need to rent them out or else they’d go bankrupt.
obeyed, allowing an underground short- term rental market to continue. Thorben Wieditz, who runs the advocacy group Fairbnb Canada, has received frequent complaints about non- compliance. “In many cases,” he says, “we are dealing with individuals who are unscrupulous. They have acquired a large number of condo units … they need to rent them out or else they’d go bankrupt.”
For landlords with deeper pockets and a longer runway, it can pay to wait. Alexis Leino, who is both a real estate agent and an LPAT appellant, is fighting the rule because he’d rather keep his basement apartment on Airbnb, renting it when he likes and other times hosting family and friends.
“Ever since the Residential Tenancies Act was rewritten intended to benefit tenants might have had the opposite effect.”