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Short-term rental rules are tightening — is it still worth investing in condos?

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Are investment properties, particularly condos, still a viable and profitable option for investors? 

Zoocasa looked at the question as the allure of short-term rentals through platforms like Airbnb loses its shine as cities across North America tighten regulations. The latest to join this trend is New York City, which recently enacted a law prohibiting rentals for fewer than 30 days, a move that echoes the efforts of several Canadian cities. 

These changes are largely driven by the need to address housing shortages, with policymakers hoping to return more properties to the traditional long-term rental market.


New regulations for short-term rentals


Short-term rental regulations are becoming increasingly commonplace, with many Canadian cities already implementing limitations. For instance, Zoocasa notes that as of Sept. 1, Halifax has restricted how units can be rented in residential zones and now mandates basement apartments or backyard suites to be rented for more than 28 days. Meanwhile, Toronto imposes a maximum limit of 180 days per calendar year for short-term rentals, and the British Columbia government is drafting its own set of laws governing short-term rentals.

Zoocasa’s analysis compared monthly rental prices with monthly mortgage payments for the average condo in each city. Additional costs, such as utilities and property taxes, were not factored into this analysis.


The cost of renting vs. owning


In August, reported an annual increase of 8.9 per cent in rent prices, reaching a record-high average rent of $2,078 across Canada, while the average price of a condo in most cities did not experience a parallel surge.

Among the 12 cities where average condo mortgage payments were found to be lower than rent, Calgary stood out with the most substantial difference. With an average monthly rent of $1,920 and an average monthly mortgage payment for a condo at $1,355, investors could see a monthly surplus of $565.

Similarly, other Alberta cities like Edmonton and Lethbridge also presented mortgage payments lower than the average rent, while Grande Prairie bucked the trend with average monthly condo mortgage payments surpassing average rent by $619.

Beyond the Prairies, Quebec and the Maritimes also offer favourable conditions for investors. In Halifax, where the average rent is $2,061, the monthly mortgage payments for an average condo total $1,956. In Quebec City, monthly mortgage payments on a condo average $1,009 — less than $401 compared to the average rent in the city.

Source: Zoocasa


Ontario’s unique challenges


However, Zoocasa’s analysis indicates that Ontario presents a distinct challenge for condo investors. With the exception of Windsor and Ottawa, where monthly mortgage payments for the average condo are lower than rent, all other cities in Ontario analyzed in the study had monthly mortgage payments higher than rent.

Toronto, boasts the second-highest average monthly rent on the list, at $2,981, while the average monthly mortgage payment for a condo reaches $3,451 — a difference of $470. Other Ontario cities, including Guelph, Barrie, Hamilton, and St. Catharines, also recorded relatively higher mortgage payments when compared to rent costs.

Lauren Haw, Zoocasa’s broker of record and industry relations officer, emphasized the challenges that rising interest rates pose to condo investors. She noted, “Condo investors continue to have a hard time covering carrying costs, and they’re not making a profit, which is leading many to sell their investment properties.”

Investor interest persists


Despite these challenges, investor interest in real estate remains. The Bank of Canada reports that investors accounted for 30 per cent of home purchases in the first quarter of 2023, and the central bank’s recent decision to pause interest rate hikes and maintain the overnight lending rate at 5.0 per cent suggests that demand for investment properties may continue to grow.

Read Zoocasa’s full analysis here.

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