EXPLAINER: Who Will Be Affected by Feds’ Crackdown on Short-Term Rentals?

A construction worker shingles the roof of a new home in a housing development in Ottawa in a file photo. The Canadian Press/Sean Kilpatrick

As Canada continues to struggle with a housing crisis, the federal government has introduced a slew of new measures in the fall economic statement to support municipal efforts to crack down on short-term rentals and free up long-term housing.

“These are not spare bedrooms in someone’s home—they are entire houses and apartments that are being used for tourists to rent—in many cases, only for a few days a week,” reads the statement, released Nov 21. “Canada needs more long-term housing for Canadians to live in, and the federal government is taking action to crack down on these short-term rentals which are keeping homes for Canadians off the market.”

A lack of available housing and rising rental costs have become a focus of politicians from all political parties in 2023. Immigration is poised to put even more pressure on the housing market, with Canada intending to take in 465,000 new permanent residents this year, 485,000 in 2024, and 500,000 in 2025.

According to a report last June by the Canada Mortgage and Housing Corporation, around 5.8 million new homes need to be built or freed up by 2030 in order to tackle the affordability crisis. But it said if current housing construction rates continue, Canada’s housing stock will only increase by 2.3 million by 2030.

Eric Miller, founder and president of the Rideau Potomac Strategy Group, previously told the Epoch Times that various factors are making a return to housing affordability unlikely, such as a shortage of skilled trade workers to build units, complexities related to residential zoning, and taxes cities levy on homebuilders.

At the same time, Canada’s rising cost of living has led to a wave of people renting out their homes or cottages in the short term. This is much to the ire of federal Housing Minister Sean Fraser, who said on Nov. 20, the day before the fall economic statement was presented, that Ottawa was looking at ways to free up short-term housing.

“If there’s tens of thousands of units that we can turn into, not a competitor for a hotel for a few nights, but a home for a family, ... it’s incumbent upon us to do everything we can to use the properties that are available for homes,” said Mr. Fraser.

Supporting Municipalities and Provinces

According to fall economic update, there were an estimated 18,900 homes being used as short-term rental properties in 2020, but the number has almost certainly increased since then. While current exact statistics are hard to come by, one report by McGill University estimated that there were 28,510 short-term rental listings active each day in British Columbia alone in June 2023, taking around taking 16,810 housing units off the province’s long-term market.

According to Statistics Canada, private short-term rentals have been accounting for a greater share of revenue of the Canadian accommodation services sub-sector in recent years, rising from an estimated 7 percent in 2017 to 15.2 percent in 2021.

The statement also notes that in recent months, some provinces and municipalities have taken action on short-term rentals. Quebec has tabled legislation requiring short-term rental companies to ensure their online listings are certified by the province, while B.C. has tabled a bill that seeks to crack down on short-term rentals by increasing fines and strengthening tools for local governments and establishing stricter provincial rules.

The city of Toronto, meanwhile, requires those operating short-term rental properties to register with the city before renting them out for less than 28 days.

To support the local government’s intention to put pressure on short-term rentals, Ottawa announced that it will deny income tax deductions for expenses incurred to earn short-term rental income—which includes interest expenses—in provinces and municipalities that prohibit short-term rentals.

Additionally, income tax deductions will be denied in scenarios where short-term rental operators are not compliant with the applicable provincial or municipal licensing, permitting, or registration requirements. These two measures will apply to all expenses incurred on or after Jan. 1, 2024.

The fall budget update also contains additional policies to support municipalities seeking to crack down on non-compliant short-term rentals. Over the next three years, $50 million will be provided to support enforcement of restrictions on rentals that are “having a significant and measurable impact in returning short-term rentals back to the long-term housing market.”

According to the document, Ottawa believes that removing the ability to deduct short-term rental expenses, along with providing support to municipalities looking to enforce restrictions on them, will act as a strong incentive for “operators of non-compliant short-term rentals to return these properties to the long-term housing market.”

Other measures outlined in the economic statement to help with housing affordability include removing the GST from the construction of new co-op rental housing, $15 billion in new loan funding under the Apartment Construction Loan Program to encourage the construction of affordable housing, and a new “Canadian Mortgage Charter” to push financial institutions to provide more relief to Canadians struggling under interest rate increases.