I love the ‘shared economy’ (peer to peer, collaborative /consumption / mesh economy). Technology has allowed people to extract value from assets they own. Such assets may be property, local knowledge, a car, in fact anything one wishes to lend to another for a cost to earn a little extra income. In difficult economic times, I am sure many people welcome some extra income. It’s innovation and it’s rejuvenating.
Of course, with innovation comes opposition and resistance from parts of various industries. I recently read that the chair of the Association of British Travel Agents referred to the shared economy as the ‘Black Economy’ and specifically citing AirBnB and Housetrip (the latter had a speaker at the recent ABTA 2014 conference held in Slovenia). He stated they ‘provide a platform to allow the black economy to grow’. Strong words.
From an online point of view, maybe Craigslist was the first foray people made into the shared economy. Many people rented their apartments or houses to strangers via the website. There was little resistance at the time, of course Craiglist was (and still is) used for all sorts of things including renting, selling, and buying and has thousands upon thousands of users.
Within the broad definition of the travel industry, AirBnB is the most prolific business to appear, allowing property owners to let a room (or the entire property) for short amounts of time. It’s a tremendous success and great model.
I believe the model is as such:
- A property owner wishes to rent a room / the building for a short period
- To do so, they advertise within a market place (such as AirBnb or Housetrip, there are loads more)
- Buyers are also in the market and so buyers and sellers come together and form a contract
- In some cases the buyer passes the money to the market to hold
- Upon services from the seller satisfying the buyer, the money is released from the market to the seller
Such success though has attracted many critics and opposition. Opposition appears because, now with scale, the model is seen as a threat to incumbents. In this particular example, that would be hotels and/or some travel businesses. There are other argument too such as ‘its pushing up the price of rentals’ or ‘it’s worsening the housing crisis’ yet there is little evidence for any of these arguments that I have seen.
The material opposition I think can be summed up into two main questions:
- Is the seller paying any tax due on the extra income?
- Is the seller complying with applicable regulations?
The answers, so far as I understand, may be:
Tax –why not assume each seller is paying the applicable tax rather than not paying? I haven’t seen any evidence of tax evasion published. Everyone in the UK is already responsible for paying tax on income. It seems odd to suggest that this model is an exception and somehow sellers decide not to pay tax on income generated
Regulations – Firstly, which regulations apply? Secondly, if someone wants to stay at my property and they are happy with the cost and condition (and I’m prepared to be liable should anything go wrong) what’s the problem? The property owner must be the party responsible regarding any compliance issues. I don’t think the market or platform on which the market operates itself should be responsible.
Yet much opposition seems to come to those businesses that are, in fact, the platforms that allow the market to operate. Back in the 1980’s many people used the window of the local post office or newsagents to advertise services, empty rooms etc…. Now one can use AirBnb and a whole host of others.
To suggest companies like AirBnB need to be responsible for tax and regulatory compliance of advertisers using the platform is kind of like saying ‘ lets make the post office responsible for tax payments and regulatory compliance for any advertiser in its shop window.’ Clearly, that idea is not going to fly.
However, the model isn’t without problems. A tenant may display a room on a sharing site without the permission of the landlord for example, and there are more issues of course. But these are issues for the property owners, not the market place, to take responsibility for.
In summary Pomeranc argues:
- AirBnB helps tourism / the economy by making accommodation cheaper and tourism is good for the economy
- Most hosts may earn enough to make a small difference to day to day life, which is also good for the economy
- The AirBnB community in NYC will pay $36m in sales taxes, which is good for the authorities
And he states some further facts:
- There are 3m households in NYC, 25k feature on AirBnB, that’s 0.8%
- 87% of hosts live in the home they share and only share occasionally
- There is some academic opinion that short term lets do not drive rental prices up (although I am sure I could find academic opinion which opposes this view if I dug hard enough)
Those in opposition argue that AirBnB features ‘illegal’ hotels. Some believe it is driven by parties within in the hotel industry itself, which is driving the opposition. I would not be surprised, some may see the new platforms as a threat to income and their business model and so rather than adapt, it’s much easier and cheaper to try to kill the competition.
New markets need legislation but the question is where should it lie and who sets it?
Any legislation should not, under any circumstances, be imposed by those who operate within the same industry and see the new business as a threat. It needs to be set by a centralized authority which is not lobbied by the industry stalwarts but can objectively review and understand the new markets and business models.
To call the sharing economy a ‘black market’ is a sweeping generalisation of any advertiser using any of the platforms. It also seems protectionist and conservative.
Our economy needs progression, not regression. We all want to improve our standards of living and this model allows people to do so, both buyers and sellers. We should be encouraging such models.
Change, just like winter, is coming.* In my opinion, it’s always better to embrace the tide of change rather than try to stop it. The market won’t stop. Customer demand forms and directs markets, demand sniffs out good value. Its clear that in the eyes of the consumer the new markets and platforms in which they operate offer better value than some existing markets for some customers.
Change also brings opportunity, sometimes it might be hard to find, but it’s there.
* I’m afraid I couldn’t resist throwing in a Game of Thrones reference there