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For years, Danny Jellis has made a mint off of Airbnb.

The basement unit of his house, located in Toronto’s west end, clears $3,000 a month from bookings on the popular short-term rental site. The previous long-term tenants paid $1,100. Although Mr. Jellis lives off other income, the Airbnb cash is “the cherry on the cake.”

Not for much longer. Over the course of the year, Toronto will ramp up enforcement of its long-delayed rules on short-term rental sites, and eventually require companies to register with the city, along with hosts that collectively advertise thousands of units every day.

Only Mr. Jellis won’t be one of them. Under the rules, hosts will be able to rent from their primary residences, but secondary suites (such as his basement) are considered separate homes.

“I'm going to switch back to long-term rentals,” he said. “I can probably get $1,900 dollars a month, which is certainly enough for me.”

There are hundreds, if not thousands, who will join him. As Toronto implements its short-term rental rules, the city could see a flood of units put back on a long-term rental market that desperately needs them. But the transition, experts say, will hinge on how effectively Toronto roots out illegal operators, and whether Toronto will succeed where other cities have stumbled.

“It’s an evolving cat-and-mouse situation, where people who are trying to get around these rules figure out ways to do that,” said David Wachsmuth, a McGill University professor who’s extensively researched the short-term rental industry. But, he added, “if Airbnb and the city are working co-operatively, all these problems are trivial.”

For years, Toronto’s rental market has been characterized by few vacancies and surging rates. (The average two-bedroom condo rented for roughly $2,500 a month last year, according to Canada’s federal housing agency.) Given strong population growth, but little purpose-built construction, demand has overwhelmed supply.

Short-term rental sites have played a role, too, research suggests.

At the end of April, 2019, there were 21,000 active listings in Toronto, on platforms such as Airbnb, VRBO and HomeAway, according to a McGill paper co-authored by Prof. Wachsmuth. More than 5,500 units were booked enough that they were removed from Toronto’s long-term housing market, the paper said, an increase of 24 per cent from a year earlier. (Airbnb has repeatedly disputed McGill findings that tie the company to housing losses.)

Increasingly, hosts bear little resemblance to Mr. Jellis, who manages a single listing on his property. Nearly 40 per cent of Toronto listings came from commercial operators – hosts with two or more entire-home listings, or three or more private-room listings – and they generated most of the previous 12 month’s revenue of $208-million, the McGill report said.

“The short-term rental business is very lucrative for some investors,” said Dana Bell, a realtor who’s rented part of her investment property in North York on Airbnb.

The industry flourished as regulations stalled. The city passed its rules in two phases by January, 2018, but zoning-bylaw amendments were quickly tied up in appeals, and it wasn’t until last fall that a tribunal ruled in the city’s favour. While some hosts are trying to mount another appeal, the city is moving ahead with its plans.

Under Toronto’s system, hosts will have to register with the city, and can only rent from their principal residence. They can rent up to three bedrooms in their home for an unlimited number of nights a year, or their entire home for no more than 180 nights a year. (A single short-term stay runs less than 28 consecutive days.)

Rental companies will have to get licensed with the city, and are responsible for ensuring that listings have valid registration numbers. They will need a process for removing flagrant listings, and will have to collect records of activity and send it to the city upon request.

“Fundamentally, [Toronto has] a good plan,” Prof. Wachsmuth said, but “we’ll see what it looks like when the switch gets flipped.”

Provided that there are no further delays, that should be later this year. Licensing and registration will begin in the spring, according to a city website, with enforcement to follow in the summer.

Already, there are rental conversions under way. Jason Young rented out a basement unit in Scarborough through Airbnb for close to two years, but switched to the long-term market in January.

“With all the new regulations coming in, I figured I’m not going to break the rules or try to fight the city on anything,” he said.

But if other cities are any guide, the transition will be rocky.

After Vancouver put in rules, some hosts claimed their units were in other cities – say, Surrey – allowing them to avoid submitting registration IDs on rental sites. Users, however, could see that a Surrey listing was actually located in Vancouver. The city was able to clamp down on such listings, and as of November, it has “delisted” more than 600 units that have “the potential to be converted to long-term listings,” according to a city website.

Several hosts who spoke with The Globe and Mail envisioned various ways of circumventing Toronto’s rules. (For instance, some hosts may strike fake tenancy agreements with family members to continue renting out secondary residences.) Still, others said they would sell their homes. Mr. Young, despite converting a unit to long-term rental, plans on cashing out of his income property next year.

Prof. Wachsmuth said it’s “very reasonable” to think 1,000 units will return to the long-term rental market in the near term, with the potential for further gains as the city works out any kinks in enforcement.

“Toronto is the biggest municipality in the country,” he said. “They’ve got a ton of really highly trained staff. If anybody’s gonna be able to pull [enforcement] off, it’s them.”

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