New restrictive Airbnb legislation could hurt condo investors

Monday, December 11th, 2017

Neil Sharma
Canadian Real Estate Wealth

The new City of Toronto legislation restricting Airbnb apartments could spell bad news condo investors.

The legislation will restrict listings to principal residences and prohibit homeowners from renting out secondary units, like basement apartments, and will likely flood the primary rental market with new apartments.

Toronto’s chronic rental shortage—the vacancy rate is 1%—has been a boon for condo investors, who have benefited from fierce competition among renters that often manifests as bidding wars.

“In terms of the rental market, there will be a flood,” said David Wood, a sales representative with Forest Hill Real Estate Inc.” It’s a bad thing for typical one-year lease landlords because there will be more competition in the next three or four months, so if their lease comes up there will be less people to rent to.”

Wood, however, believes Toronto City Council’s legislation is not a bad thing because renters are desperate for shelter. “It could be a good thing for renters over the next two months,” he said. “I think it’s good for the city with the vacancy rate where it is right now. I think it’s a good move for the city to increase vacancy.”

Enforcing the new law is another matter, he added.

Alex Balikoev, a Core Assets Real Estate sales agent, doesn’t think the legislation cuts to the heart of the matter. He says that while the legislation will provide a short-term solution, it does precious little to address the larger issue: the shortage of high-quality rental units.

“Instead of doing something to streamline the issuing of building permits to developers so that they can build more condos, which can potentially be very high-quality rental units, they try to stick the tenant in the basement, which, why they’d do that, is a mystery to me,” said Balikoev.

While Balikoev envisions more problems of a similar nature down the road, another immediate problem he identified pertains to families struggling to make mortgage payments. In a city grappling with affordability, Airbnb was a great way to supplement monthly income, he says.

“Some families might struggle with their mortgage payments because they counted on auxiliary units for additional income, which would help them cover the mortgage,” said Balikoev. “Now, I’m not sure what they’ll do.”

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