We all know that many cities across Canada are grappling with out-of-control housing prices. In the Greater Toronto Area, young families can’t afford the cost of million-dollar “starter” homes, and young professionals are struggling with monthly rents averaging $1,800. Vancouver has the most expensive housing in the county, and though activity there slowed for a while, the market returned to near-record levels in May.
Enter city politicians who claim they will cure our housing woes with … new taxes and regulations?
In mid-June, Toronto Mayor John Tory’s executive committee voted to approve a draft plan on short-term rentals, a program they say will increase the rental housing supply. The proposal includes a new “licensing fee” for people who list their vacant rooms or homes on short-term rental services like Airbnb, and a fee for the company itself if it wants to continue operating in the city. (Full disclosure: I have both used Airbnb and rented out my primary residence on Airbnb.)
New municipal ‘user fees’
The proposed fees would range between $40 and $150 per year for individuals renting out their primary residences for 28 days or fewer, and between $5,000 and $20,000 for the companies. Short-term rentals of non-primary residences would be banned.
The city has explicitly stated that this new cost of using your own property is not a tax, but rather a “user fee.” That’s not just because “user fee” sounds better than “tax” — it’s because the city is also considering direct taxes on people who want to rent out their homes.
The Ontario government has already passed a bill that would allow Toronto to levy a hotel tax, although it is not yet in force. Toronto has proposed a four per cent tax on hotels, and now somewhat arbitrarily, a 10 per cent tax on short-term rentals in private homes.
That’s a 10 per cent tax on individuals renting out a bedroom in their own home. The average host on Airbnb earns $4,900 per year, and that is already taxable income. To put a 10 per cent tax on top of that is punitive, and it gives the impression that the government is to shut down the entire home-sharing industry. This appearance is underscored by the fact that the city has proposed taxing traditional hotels at less than half that rate.
In Vancouver, city council is preparing to vote on a plan that is similar to Toronto’s. Vancouver Mayor Gregor Robertson wants to impose a $49 licensing fee for Airbnb rentals in primary residences. Renting out non-primary residences would be banned, much like in Toronto, but Vancouver goes a step further by also proposing to ban rentals in legal secondary suites such as basement apartments and laneway homes.
These proposals will cost homeowners, while simultaneously failing to achieve their stated goal of increasing the housing supply. The government admits that the evidence that Airbnb has constrained the rental market is anecdotal. Yet they are willing to tax and regulate people’s living situations and meagre income based on anecdotes.
The reality is that the majority of people who occasionally rent out their rooms or homes on Airbnb are renting their primary residence. Forcing them to jump through financial and regulatory hoops won’t increase the housing supply. Of course there are individuals who rent out non-primary residences on home sharing platforms, but they are in the minority and they can’t reasonably be blamed for causing the Toronto or Vancouver housing crises.
As taxes and regulations continue to increase, the income generated by short-term rentals eventually stops being worth it, and homeowners with spare rooms will simply allow those rooms to sit vacant. They don’t magically return to the long-term rental market when the majority of them were never a part of it before. The only significant result is that people will no longer be able to supplement their incomes or help pay their rent or mortgage.
It’s always the government that kills the goose that lays the golden egg. A few people are making a little bit of money renting out rooms in their own homes, and the government wants to crush the business model with taxes and regulations.
We’ve seen them do it before – the entire system of development in Toronto is labyrinthine to the point that regular people can’t afford to put rental suites in their basements or renovate decaying heritage homes. In Calgary, applications for secondary suites languish because each one needs to be heard individually by city council.
Relaxing some of these absurd rules around development would do a lot more to expand housing supply than taxing and regulating Airbnb hosts. That’s the path city governments should pursue.
He who has pity on the poor lends to the LORD, And He will pay back what he has given. – Proverbs 19:17