Posted by Brandon Copeland
The sharing economy. It is a term that I have used several times in articles I have written. It is also a term that is somewhat new, rising to prominence this past decade. Home-sharing, largely through platforms like AirBnB, is a significant actor within the sharing economy. With population and interest in the sharing economy rapidly growing, it is not surprising to see traditional industries fighting back against displacement.
Certainly, we have seen the battle over the past several years between cab drivers and Uber. More recently, however, AirBnB has begun to be a target of some actors within the hotel industry. Here in Newfoundland, Hospitality NL recently released a press statement calling for the provincial government to begin to regulate AirBnB.
The challenge though, and one that governments as well as opponents need to understand, is that traditional regulation for the sharing economy is not appropriate. While I would never make such a blanket statement as to suggest that all regulation would be bad, there is no doubt that the sharing economy and the companies that operate in the space are fundamentally different than the traditional businesses that are calling for help. It is therefore my opinion that the option is not to regulate traditionally – it is instead a tougher exercise that requires understanding how and why these new technologies are emerging and providing unique and thoughtful regulation to deal with them.
AirBnB can’t be regulated like traditional hotels or bed and breakfasts, because AirBnB units are not traditional hotel rooms or bed and breakfasts.
The idea of the sharing economy, and AirBnB by extension, is that people share the excess of their assets. In the case of AirBnB, people buy expensive homes, however they don’t necessary utilize all of the rooms all of the time. AirBnB capitalizes on the fact that people need space when they travel, and homeowners have space they aren’t using in an already existing asset. By pairing these two groups, who would likely never connect without the app, AirBnB is able to create a mutually beneficial relationship between virtual strangers.
The reason that AirBnB differs from a hotel though is that these properties are not explicitly built to function as accommodations. These are people’s homes – at least in many cases. In fact, it is for this reason that regulator patterns are emerging in many cities where shared spaces and primary residences are being separated from AirBnBs that are exclusively used as vacation rentals and commercial accommodations. This is fundamental, and is important when discussing how AirBnBs should be regulated. Trying to apply hospitality regulations on how a person utilizes their residence is not (and should not be) cut-and-dry.
Additionally, as a different type of product, AirBnB offers a different experience. According to this Crimson Hexagon report travelers list convenience as their reason for choosing AirBnB over hotels at almost the same rate that they list price. The ability to have a kitchen, or a more spacious and homey stay, is quoted by those who were spoken to.
The product is different, and travelers are making decisions based on the product option that best fits them. As a capitalist, this is what I want in a market – choice and competition.
Existing Hospitality Policy Doesn’t Necessarily Fit
There currently exists regulation around how a home must be built. Safety regulations are very clear about quality of structure and what is required. This regulation is acceptable for residents, and it is acceptable for friends and family that visit the property. Why then, is this proposed to be unacceptable for strangers utilizing the space in the same way that the aforementioned users use the space. To me at least, this is a key question that needs to be answered when having the home-sharing debate.
Additionally, there are fees and regulations associated with hospitality establishments. In many cases, at least in my opinion, these fees cover services that are of no value for AirBnB accommodations. Perhaps most relevant is the requirement to be inspected and reviewed by Canada Select. Canada Select will visit a tourism operator, assess the property, and provide a Star Rating. In order for the operator to receive this service, they must pay a per-room fee (which, for the record, is capped if enough rooms exist in the property). Canada Select is a for-profit entity written into provincial regulation. The problem is that AirBnB has a similar system – differences are that the ratings and review cost the operator nothing, and are actually provided by guests who stay there as opposed to a hired inspector who briefly visits. In a pre-Yelp age, a service such as Canada Select’s would seemingly have tremendous value. However, for AirBnB hosts, it is entirely unnecessary.
I mention this not to attack Canada Select as an entity, but to instead point out how existing hospitality policy could be adapted to invite AirBnB hosts instead of dissuade them. If the intent of the Canada Select regulation was to provide transparency to any regulated units in the province, then that goal should continue to be met. However, Canada Select isn’t the ONLY way in which to achieve this. Canada Select works great for hotels or bed and breakfasts who don’t have a public review process. Adapting the regulation to allow a certain star-rating on AirBnB be demonstrated as an alternative to a Canada Select rating would make far more sense for AirBnB hosts. What’s more, adjusting regulation in this way could help other hospitality providers as well. Why should Canada Select have a monopoly on ratings? Perhaps there is a way to allow a variety of rating options that have been vetted by government. Canada Select, Yelp, AirBnB or TripAdvisor could all represent options for a regulated establishment to present.
The key piece is that the policy be adapted to the times in which we live. What will undoubtedly receive pushback from AirBnB hosts would be the status quo policy be pushed despite the redundancy. Round peg and square hole and all that.
Its also worth noting that some municipal and provincial fees exist which are paid by tourism operators. These fees are subsequently spent on marketing Newfoundland and Labrador – a service which AirBnB hosts certainly receive a benefit from. Should AirBnB hosts contribute there fair share? It could certainly be argued that they should. However, are all of the services valuable? In addition to tourism campaigns in other parts of the country, these fees contribute to the publication of brochures and provincial guides that direct tourists to accommodations and activities around the province. I suspect AirBnB hosts would actually prefer to NOT be listed in such a publication. For one, AirBnB provides privacy to the host until a guest is actually booked. Secondly, potential guests can’t just call and book – bookings must occur through the platform or else hosts lose access to some of their built-in insurance. With this in mind, policy should be reviewed to determine what a fair fee for an AirBnB host would be, since their needs and wants are notably different than traditional establishments.
Community Business Impacts are Positive for Most
So, with all that said, how does this tie into neighbourhoods? How different businesses and ideas impact neighbourhood life is important to me – both personally and professionally. Honestly, I’m of the mind that AirBnBs are a huge positive for the neighbourhoods in which they operate.
Cheaper accommodations theoretically mean more disposable income. It stands to reason that travellers will use this extra cash for a longer stay, or to buy more things while visiting their destination. The stats back this up. According to AirBnB, guests tend to stay 2.1x longer than typical visitors, while also spending 2.1x more money than traditional visitors. Interesting.
The stat that really catches my attention has to do with neighbourhood spending, however. 42% of guest spending occurs in the neighbourhood in which they are staying. This is an incredibly fascinating statistic for any brick-and-mortar small business, as well as for any commercial real estate investor. The location of successful AirBnBs would be an incredibly relevant stat for local businesses – particularly those who require foot-traffic. Further, overly regulating AirBnBs in a city could actually DAMAGE existing small businesses, since a heavy hand could deter hosts and guests alike.
So what do we do?
Overall, I think AirBnB is a positive thing. In many way it provides a way to revitalize neighbourhoods. It isn’t uncommon for would-be hosts to buy properties and fix them up with the hope of attracting guests. It also is a means for housing to become more affordable for first-time buyers, a valuable tool in a down-real estate market. And, in my opinion, AirBnB stimulates small businesses. Statistics suggest it is more beneficial for a neighbourhood to have 10 AirBnBs as opposed to 10 new hotel rooms.
AirBnB hosts are definitely in a grey area right now, navigating a new and unregulated industry. I think that there are some justifiable regulations and fees that should be in place, but it isn’t as simple as slapping current regulations on an emerging way of life. As an economic stimulator, AirBnB hosts deserve an assessment of how the business model works, and a regulatory framework that exists within the realities of the space.