Airbnb-ing to help cover mortgage payments?

Hoteling a home you own? Short stays are transplanting long-term tenants.

Short-term rental income has been made more accessible via the support of platforms like Airbnb and Vrbo. By purchasing a desirable property in a desirable location, real estate investors have found they can make a lot more money turning it into a 'hotel' than finding a long-term tenant.

A long-term tenant may bring money in, but it's typically not as lucrative, flexible, or easy compared to guests who stay for a night or a week (for the most part, assuming they haven't had unruly guests).

Short-stay hosts often charge a lot more during high-seasonal demand, using the income to eventually pay off the mortgages (or gain more equity), sometimes turning around and buying even more properties geared to short-term rentals. Until 2024, most hosts could get tax credits to cover some expenses of running this business model.

Experts are saying this phenomenon has added to Canada's dilemma of the housing haves vs the have-nots:

• In 2023, 235,800 unique short-term rental listings were active on Airbnb and Vrbo, amounting to 1.4% of Canada's housing inventory
  
• Every 1% increase in the share of Airbnbs (across 19 Canadian cities) resulted in a 2.3% increase in rents
• A balanced rental market rate is usually around 3%; in 2022, it was 1.9%, and in 2023, it fell to 1.5%
• In 2020, Canada ranked last in housing availability, with 424 housing units per 1,000 residents, compared to the G7 average of 471
• In 2023, Canada brought in record immigration to the tune of 1.2M, and in 2024, over 400K newcomers have arrived

So now, the air mattress has flipped.

With a shortage of homes to buy and rent, homes being turned into tourist hotels are being increasingly targeted with restrictions, increased expenses, and extra taxes — putting a big dent in short-term income plans.

Airbnb investors (and the like) are being ousted.

The backlash against the short-term rental market grew stronger throughout 2023. Towards the end of the year, many provincial and local governments and town councils levelled taxes and restrictions in an effort to curtail short-term rentals in favour of long-term housing.

Leading to some significant short-term rental curbs.

Income tax deduction limits for short-term rentals.

Starting January 1, 2024, the federal government will begin denying expenses related to short-term rental income, including interest expenses, in areas where such rentals are restricted (those affected will have up to a year to comply with local regulations).

A ban on unoccupied short-term rentals in BC.

Effective May 2024, in areas with more than 10K residents, a principal residence requirement means that homeowners can only rent out a room or secondary suite in a home they dwell in. Resort municipalities, like Whistler, Tofino and Osoyoos, will be exempt.

Fines for breaking the rules are tripled to $3K per day of infraction, with the authority to regulate and license short-term rentals now transferred locally.

GST/HST applied to the sale of properties used long-term for short-term rentals.

A recent Tax Court of Canada ruling saw an Ontario homeowner — who regularly rented out their property on platforms like Airbnb — have to cough up a 13% HST upon sale of the property. The reasoning is that the homeowner used the property for commercial purposes only.

This ruling is based on federal tax legislation and could apply across Canada, not just in Ontario. The specific tax rate and implications could vary depending on the province, as not all provinces have a sales tax (e.g. Alberta), and GST would be the likely fallback.

Hefty fines in Quebec.

On September 1, 2023, Quebec brought in short-term rental laws for uncertified listings — with fines of $100K for platforms if unauthorized rentals are offered and $50K for rental operators who present misleading or false information. Inspectors now comb through the sector, levying fines and ensuring compliance.

Some towns are harshly restricting short-term rentals.

In Ontario, the town of Tiny only allows guests for a minimum 6-day stay, ending 'weekend-only' rentals that can help cottage owners stay afloat with mortgage payments. Many other towns are following suit to weed this business model out on behalf of residents (though facing backlash from others who rely on the short-term income).

Federally, $50M over 3 years will aid the clamp down.

The federal government intends to support municipalities in enforcing regulations to end the gluttony of short-term rental 'abuse' to free up more long-term housing.

Not just Canada.

And it's not just Canada taking measures — other popular destinations (like Italy and Australia) are adding regulations for an industry that has grown substantially in the past few years.

Is it all too much, too soon?

Will the regulations affect homeowners and local tourism in an overly negative way? Many agree that something must be done to address the platform's popularity. But time will tell if some measures have too much bounce.

Counting pennies? 'Air mattress' hospitality may still offer mortgage help.

Short-stay platforms have been a supplemental income saviour for some struggling to afford Canada's high home prices (which require a larger share of income compared to other G7 counties).

Let's look at this article quote (BNN Bloomberg) from June 2016:

As housing prices continue to climb in cities like Vancouver and Toronto, a growing number of Canadians are using Airbnb to offset their mortgage costs, according to Aaron Zifkin, Airbnb’s Country Manager for Canada.

How much have home prices grown in Canada since 2016? About 38% — for a 2023 national average home price of $678,282.

It stands to reason that homeowners are counting on this type of extra income even more today.

While the majority of regulations and tax deterrents are aimed at big-time investors, small-time, in-home operators (the original intent of Airbnb) are now facing increased fees and taxes — with fewer expenses covered.

Short-term rental income may bring in less but can still provide budget relief. All in all, it's essential to keep an eye on the regulations and costs in your area, with thought given to whether a long-term tenant may be better worth it in the long view.

Restrictions may eventually improve or be improved for in-home operators. Some experts have declared this controversy a drop in the bucket for meaningful housing supply relief, with over 3.5M more homes needed by 2030.

Need more ways to pad your mortgage budget?

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