Following in the footsteps of major municipalities around the world, Canada's biggest cities are getting closer to regulating Airbnb, the popular online service that allows homeowners to rent out part or all of their properties on a short-term basis.

Toronto recently unveiled its proposed regulations on short-term rental services, of which Airbnb is the undisputed global leader. Vancouver has also proposed its own regulations, which are expected to go to city council later this year.

Getting legitimate approval to operate in major cities is important for Airbnb, according to Mandeep Singh, an analyst with Bloomberg Intelligence who studies Airbnb.

"They're most afraid of not being able to operate in a big city like London or New York," said Singh.

Airbnb has made public relations inroads in cities around the world by agreeing to collect local hospitality taxes from hosts, he said.

The Canadian spokesperson for Airbnb confirmed that the company will co-operate on taxation in Canada.

"We have done more than 300 agreements worldwide, collecting and remitting taxes like this through our platform," said Alexandra Dagg, a public policy manager with Airbnb. "We do think this is important for us to be part of that system, and we do want to pay our fair share."

The recent Ontario provincial budget included plans to allow the City of Toronto to tax "transient accommodation" including hotels and short-term rental services.

What kind of rentals should be allowed?

The question of what kinds of properties can be rented via Airbnb could be a point of contention between Airbnb and the governments of Toronto and Vancouver.

Last October, Vancouver city staff recommended that "short-term rental in non-principal residences (e.g., investment properties) should remain illegal," citing strong support from residents surveyed on the topic.

Toronto has also proposed that short-term rental hosts be limited to renting out their "principal residence," in order to prevent the city's scarce rental housing stock from being diverted to short-term rental platforms like Airbnb.

If that regulation passes, Toronto city staff anticipate a significant reduction in Airbnb listings in the city. Approximately 3,200 properties listed for rent on Airbnb in 2016 would be removed, according to Toronto's proposed regulations, leaving about 7,600 authorized listings in principal residences.

Airbnb allows hosts to post a room in their home, or an entire property, online for short-term rental. (John MacDougall/Getty Images)

"I would suspect that Airbnb is most concerned about losing these so-called multi-listing hosts, because that cuts into their revenue stream," said Thorben Wieditz, a researcher with the Fairbnb Coalition, which comprises a hospitality workers union, a variety of urban issues advocacy groups, hotel industry groups and others.

The Airbnb spokesperson wouldn't comment specifically about Toronto's proposed restrictions on principal residences, saying that the company plans to address it in detail at a Monday meeting of the city's executive committee.

"What we want to ensure is enough flexibility for Torontonians to continue to home-share," said Dagg, who framed the issue of short-term rentals in terms of enabling homeowners to use their extra space to help pay their mortgages, as well as providing affordable rooms to travellers.

Compliance challenges

Even after regulating short-term rental services like Airbnb, some cities around the world have found it difficult to enforce compliance, said Murray Cox, founder of Inside Airbnb, a website that collates publicly available data about Airbnb listings.

"Most of the time when you see a listing on Airbnb, you don't know the exact location, you don't see a street address, the co-ordinates on the map are slightly anonymized," said Cox.

"You could argue Airbnb do that for privacy reasons, but it also makes it difficult to enforce."

The difficulty of enforcing regulatory compliance is already evident in Canada. A year after Quebec passed a provincial law that required short-term rental hosts to register with the province, relatively few Airbnb hosts had bothered to do so.

Airbnb argues that the responsibility for complying with municipal regulations falls upon the hosts who put their properties up for rent. (John Locher/Associated Press)

Airbnb argues that it's just the platform on which short-term rental hosts list and manage their properties, and that those hosts are ultimately responsible for following local regulations.

"Essentially it's really the host's obligation to comply with laws, and it's part of our terms of service that we have," said Dagg, who added that Airbnb tries to "play an education role" to promote compliance.

Critics like Wieditz of the Fairbnb Coalition argue that Airbnb has little interest in following the rules.

"Companies like Airbnb or Uber or these disrupters, what they do is they enter a market, they do not obey already existing rules and regulations, they grow very fast, very quickly, and then they grow so fast and so big that governments cannot ignore them and cannot say no to them anymore," he said.

Wieditz points out that Airbnb has sued cities that have tried to impose tough regulations, like New York, Santa Monica and San Francisco.

"The places that are being sued by Airbnb are places where regulations are proposed or actually put in place that do actually have teeth, and that would actually make a difference," Wieditz said.