For years the wineries, sand dunes and celebrity chefs of Ontario’s Prince Edward County have been enticing Toronto residents to drive a couple of hours east for a weekend getaway. The visitors have such a grand time cycling the back roads and exploring the beaches of the headland jutting out into Lake Ontario that many are deciding to invest in their own piece of county real estate.
In the past couple of years, that stream of investors travelling along Highway 401 has turned to a flood, real estate broker and local Councillor Treat Hull says. Not only does PEC real estate appear affordable compared with rich Toronto values – the rising popularity of short-term rental platforms such as Airbnb adds an incentive.
Prince Edward County real estate broker Treat Hull poses for a portrait at the Drake Devonshire in Wellington, Ont., on Sept. 7, 2018.Marta Iwanek/ The Globe and Mail/The Globe and Mail
Many visitors are impressed by the very high rental rates for Airbnbs in the County and decide it would be a good investment to buy a house there and convert it into a short-term rental, Mr. Hull says. Many are also looking for a way to gain a toehold in the County with a property they can eventually use as a vacation home or residence after retirement.
“Typically, these Toronto buyers are naive – abetted by some realtors who have run listings with language like ‘guaranteed Airbnb income,’” Mr. Hull said. He warns that many investors are completely unaware of looming changes: regulations governing short-term rentals are coming to the County.
The local government is looking to rein in the practice because – while great for weekend revellers – the rise of short-term rentals has been extremely hard on the people who live and work in the County, he explains.
“It’s a widespread and very painful topic,” Mr. Hull said.
The Airbnb phenomenon is also affecting the other weekend playgrounds of Torontonians: Muskoka, Stratford, the Kawartha Lakes and Niagara are all grappling with the impact that out-of-town investors and short-term rentals are having on local communities.
Prince Edward County has just unveiled a slate of proposals that would tighten the rules: Mr. Hull says councillors will likely vote on the changes before the coming municipal election on Oct. 22.
The proposals include amendments to the official plan and zoning bylaws. Also on the table is a new bylaw that would require the owners of short-term rental properties to obtain a licence from the municipality.
As both a councillor and a real estate agent who works only with buyers, Mr. Hull can see the advantages and disadvantages of short-term rentals for the community, as well as the appeal and potential pitfalls for investors.
Starting from a base of 330 in 2016, the number of short-term rental properties in the County is now estimated at more than 1,000 he says.
He points to studies that estimate approximately one short-term rental for every 75 residents.
“It’s having a major impact.”
Clogged streets, loud music and overcrowding are all problems at the height of the summer season, he says. And while existing bylaws do cover noise complaints, they don’t address the traffic problems that arise when a whole crowd of friends descends on a house with one or two parking spots.
On the flip side is the issue of “lights out syndrome,” he said – pointing to streets in such communities as Picton, Bloomfield and Wellington – where a high number of properties are rented out in the summer.
“The rest of the year, they are dark,” he said.
Mr. Hull says many of the people who choose to live in a small town do so because they value the sense of community. Those dark streets leave residents feeling isolated.
Arguably the most serious issue, Mr. Hull says, is the reduction in the supply of affordable housing.
“We have a genuine crisis,” he said.
New owners will buy a house and renovate it to create an upscale experience for renters who are willing to pay $300 a night. Mr. Hull says the homes that are transformed to suit that mass taste will never again be affordable for a local resident making a living in the County.
“They’re off the market forever.”
For an example, he points to an unrenovated century farmhouse that traded hands for $95,000 about four years ago. The house has been renovated to serve as an Airbnb and was recently back on the market with an asking price of $439,000.
“It is never going to be an affordable house again.”
And the strain is spreading to rural properties as well, he says. Some buyers are purchasing farms for a vacation retreat or a rental property. The price of farm acreage has soared while commodity prices had dipped and agricultural production has remained flat.
That places a hardship on small farmers who can’t afford higher taxes and don’t want to sell.
“Most farmers want to be in farming.”
The proposed regulations would allow short-term rentals, but owners would be required to obtain a licence and pay a licensing fee. The County would also set density targets for each area and issue licences only until that threshold is reached.
Mr. Hull points out that some neighbourhoods are already so jammed with short-term rentals that they would surpass the density targets overnight. In that case, existing properties would be grandfathered in up until a certain date.
But the licence would be awarded to the current owner – not the property. If the property is sold in the future, the new owner would not be able to renew a licence in an area where density targets have been exceeded. That means the County would be able to gradually phase out the short-term rentals in overcrowded areas.
“It’s not a disaster for someone who today is an operating an Airbnb,” Mr. Hull said. “The implication is, when the property changes hands, the licence does not go with the property.”
A proposal from the county municipal council will introduce new regulations and licensing for short-term rentals in Prince Edward County.Marta Iwanek/ The Globe and Mail/Globe and Mail
Mr. Hull says the rules include a requirement that larger properties make on-site parking available for each bedroom.
The County examined how local governments as far away as Tofino, B.C., are balancing the needs of local residents and the visitors who bring much-needed revenue.
The Town of The Blue Mountains, which covers the Collingwood area and its nearby ski hills, already has legislation in place. Niagara-on-the-Lake has implemented zoning bylaws and licensing requirements.
In Muskoka, real estate agent Susan Benson of Royal LePage Lakes of Muskoka Realty says the tradition of having cottages for rent has been established for years.
The cottage owners and year-round residents have dealt with added noise, pollution and crowding for all of that time as well.
But she adds that Airbnb and other rental platforms are piquing the interest of more buyers who are looking at the prospect of using that rental income to help pay for the cottage.
She says there is a lively conversation going on in local government and between local owners. Opinions range from banning Airbnbs outright to imposing strict regulations on them.
Ms. Benson says more prospective buyers have been asking about the possibility of operating a short-term rental.
“As realtors, we’re starting to be really careful about the advice we give.”
She advises buyers to look into requirements for insurance and fire safety, for example.
“It’s no longer just renting to friends – it’s running a business.”
But more importantly, she says, buyers should talk to their neighbours.
With traditional rentals, the same people often return year after year, she says, so they don’t want to be banned for bad behaviour. But a short-term rental property may attract more transient guests.
She recommends that buyers who want to run an Airbnb be very cautious about vetting and educating the guests.
“Make sure they understand not to fire off golf balls into the lake.”
In Prince Edward County, Mr. Hull continues to advise his real estate clients about the impact of the proposed legislation. The vast majority of investors are from Toronto, he says. That’s partly because the County has a high profile in the city but also because property values are so high in Toronto that residents there can often buy a second home in the County by drawing on a home equity line of credit.
The potential buyers who have approached him in recent months about looking for property do not know that regulation is even in the air, he says.
“Almost without exception they are not aware of the possibility,” Mr. Hull said.
He has a legal and fiduciary duty to clients, he says, and he reminds them there are risks to buying a property as an investment – with or without rental income. A downturn in the real estate market or the economy could derail the strategy, he warns.
“I’ve seen a bunch of business cycles. Nothing goes up forever,” he said. “Staying in an Airbnb in Picton is very much a discretionary expense.”
He recommends that clients have a Plan B: “What would the economics look like if you had to rent it out?”
The good news, he says, is that the dire shortage of long-term rental accommodation in the County means that an Airbnb operator could easily shift to becoming a traditional landlord.
He believes the proposed regulations may cool demand for real estate in the County for a time, but other potential buyers may speed up their plans to get in before legislation is in place.
Over all, Mr. Hull, who is not running for re-election, considers the proposed changes wise.
“It’s a series of thorny issues that have been well considered.”
Carolyn Ireland