Collaborative economy: evidence analysis

2 Peer-To-Peer Accommodation

2.1 This section provides an overview of responses relating to the peer-to-peer accommodation sector. Peer-to-peer accommodation was specifically referenced by a range of respondent types, including seven accommodation-related business and business representative respondents.

Opportunities for the collaborative economy

2.2 In addition to specific opportunities for the collaborative economy and peer-to-peer accommodation, it is notable that respondents also referred more broadly to benefits offered by the collaborative economy. Some respondents - and particularly traditional accommodation providers - cited these benefits or opportunities for the short-term accommodation sector as a whole, rather than specifically in relation to peer-to-peer accommodation. This is also reflected in responses noted later in this section proposing a consistent regulatory approach across the sector.

2.3 In terms of specific benefits and opportunities raised by respondents, the key points of note were:

• Several respondents cited evidence on the significance of short-term rentals (including peer-to-peer accommodation) for Scottish tourism. This included reference to the importance of tourism for the Scottish economy more widely. Respondents also noted the significance of peer-to-peer accommodation given its substantial share of the wider collaborative economy. Evidence cited by respondents related to the current scale of the short-term rental and peer-to-peer accommodation sectors (nationally and within specific Scottish cities), and to anticipated future growth in these sectors. These responses referred to a broad range of specific evidence including research reports such as the 2016 PwC report for the European Commission ^[2] , market research reports, reports commissioned by business representative bodies, InsideAirbnb (as a key source of data on peer-to-peer accommodation), and VisitScotland data.
• A range of respondents including business representative bodies, public sector and individual respondents, highlighted the role of the collaborative economy in supporting an increase in supply of accommodation. This included suggestions that collaborative platforms have enabled the expansion of accommodation options in areas where provision has previously been limited, and/or where there is unmet demand due to existing provision being at capacity. The extent to which the collaborative economy has enabled these gaps or shortages to be filled was also cited as a positive factor in terms of increasing tourism activity. In this context, several respondents referred to the potential for additional competition and innovation provided by new collaborative platforms - although this included some traditional accommodation providers who also expressed reservations around whether this is fair competition.
• Some also referred to the flexibility of supply supported by collaborative platforms, and the extent to which accommodation capacity can be increased quickly during peak periods. This included suggestions that flexibility may also improve sustainability of accommodation supply, for example by enabling markets to be tested for an initial period where full-time visitor accommodation options may be limited. Respondents also referred to the extent to which data held by collaborative platforms can enable accommodation providers to offer more targeted options that may better fit with customer preferences.
• Linked to reference to growth in short-term rentals and peer-to-peer accommodation, respondents suggested that the collaborative economy had helped to diversify the accommodation sector in Scotland. These respondents referred to collaborative platforms providing access to a broader range of accommodation types and price points - and potentially attracting new visitor groups. This included reference to options such as Airbnb TRIPS (providing activity and accommodation packages), business-ready accommodation, the Friendly Buildings programme, glamping and camping options. In addition to a broader range of accommodation types, respondents also pointed to opportunities to diversify the range of accommodation providers. Some noted that increasing acceptance and awareness of the collaborative economy provides new (and cost efficient) opportunities to existing or new accommodation providers - including for example potential for social enterprises. Several business representative bodies (including traditional accommodation providers) also noted that the collaborative economy is being used as a new route to market for traditional operators.
• In addition to the above points, respondents noted the extent to which the collaborative economy and peer-to-peer rentals are delivering a range of specific benefits:
  • Enabling individuals and businesses to derive revenue from their assets - and making better use of what would otherwise be under-used assets.
  • Benefits to the local economy including generation of additional employment (cleaners, laundry, etc), with some respondents referring to contractors for whom collaborative platforms are a primary or sole income source. This included a suggestion that these contractors value the flexibility offered by the collaborative economy.
  • Spending by those using short-term rentals and peer-to-peer accommodation, with a suggestion that more than 50 per cent of guests' spending remains within the local area.
  • Benefits to taxation revenue was mentioned by a business and a business representative body (both accommodation related). This included taxation directly from collaborative platforms and accommodation providers, and through generation of additional employment - although as is discussed below under 'challenges for the collaborative economy', other respondents expressed concerns around the extent to which collaborative providers are complying with tax regulations.

Challenges for the collaborative economy

2.4 Several respondents perceived a lack of regulation of accommodation providers using collaborative platforms, and contrasted this with traditional providers' compliance with a range of regulations and legislation (and the cost associated with compliance). These respondents felt that change is required to ensure an equal level of protection, and fair competition across accommodation sectors. This included reference to a need to develop regulation that is appropriate to the changing accommodation sector (discussed later in this section in relation to balancing regulation and competition). Respondents referred to specific aspects of regulation where they had concerns around the extent to which the quality of peer-to-peer provision can be ensured, including consumer safety (fire, gas and food), environmental regulations, licensing, and insurance.

2.5 Several respondents explicitly noted that existing regulations apply equally to traditional accommodation providers and peer-to-peer accommodation through collaborative platforms. These respondents, including several accommodation-related and other business representative bodies, made some reference to a need to simplify existing regulation, but suggested that a lack of proactive enforcement in relation to peer-to-peer accommodation providers is a more significant issue. This included reference to collaborative platforms failing to take responsibility for the accommodation offered, and a perceived unwillingness to share information on peer-to-peer accommodation providers that could be used by enforcement agencies. One respondent noted that local government must rely on third party websites for information on the peer-to-peer accommodation sector.

2.6 In addition to the above concerns around regulation and enforcement, a number of respondents referred to potential negative impacts of the growth in short-term rentals, and particularly the rapid growth in peer-to-peer accommodation. This included reference to specific research, briefing papers, and direct experience by respondents:

• Potential for growth of peer-to-peer accommodation to have a negative impact on local communities was mentioned by a range of respondents including business representative bodies, education respondents and individuals. This included reference to increasing pressure on housing markets due to the rate of growth in peer-to-peer accommodation, and associated rising house prices and rents limiting access to housing for local communities. It was also highlighted that there is a specific issue in rural areas where seasonal staff are experiencing difficulty accessing accommodation. Other potential negative impacts mentioned by respondents included antisocial behaviour and noise nuisance associated with peer-to-peer accommodation ^[3] , concerns around the security of premises, a loss of the sense of community where a smaller proportion of properties are occupied by permanent residents (highlighted specifically in relation to central Edinburgh), a loss of amenity for permanent residents if local services focus on the needs of temporary visitors (again mentioned specifically in relation to Edinburgh), and a negative impact on the fabric of towns for example where the responsibility for maintenance falls on a reducing number of permanent residents.
• A public sector respondent also suggested that a negative impact on local communities could undermine the ability of these locations to attract tourists. This was with reference to examples where the high concentration of peer-to-peer accommodation provision may result in a loss of character.
• A representative body for traditional accommodation providers raised concerns that the growth in peer-to-peer accommodation, and the collaborative economy more widely, has not resulted in a commensurate increase in tax revenue. This included reference to collaborative platforms being domiciled outwith the UK such that little corporation tax is paid, platforms generating relatively limited direct employment, accommodation providers typically paying residential Council Tax rather than business rates ^[4] , and difficulties for tax authorities enforcing taxation legislation for peer-to-peer accommodation providers. This was contrasted with more traditional accommodation providers, with reference being made to a 'huge difference' in tax revenue for example through payment of business rates and VAT.
• Potential for collaborative economy accommodation providers to restrict development of small businesses. This included reference to some platforms down-grading accommodation providers who wish to retain control over aspects of the letting process - such as use of a channel-manager for the accommodation calendar, and using independent cleaners.

2.7 Several respondents referred to what were seen as misconceptions around peer-to-peer accommodation, and the accommodation sector as a whole. These respondents expressed concerns that strategy and regulation should be based on an accurate understanding of the role of the collaborative economy and its potential benefits. This included reference to misconceptions around growth in peer-to-peer accommodation having led to shortages in and/or increased the cost of residential housing, that peer-to-peer accommodation has a negative impact on hotel occupancy, concerns around the safety of peer-to-peer accommodation, and suggestions that peer-to-peer accommodation is associated with antisocial behaviour or loss of residential amenity. Specific reference was made to:

• Studies which have not found a link between growth in short-term rentals and increasing house prices and/or housing shortages, and suggestions that multi-home ownership and inadequate affordable housing development are key drivers of housing market imbalances. ^[5]
• Research in Edinburgh which suggests that antisocial behaviour and loss of residential amenity associated with short-term may have been overestimated, and that any issues arising have been dealt with effectively. ^[6]
• Research which suggests that there is little evidence of short-term rentals having a negative impact on the hotel sector. Respondents also suggested that the real issue here is a failure of the hotel sector to respond to changing customer behaviour, and pointed to hotel chains having diversified their accommodation offer in response to the growth in short-term rentals. ^[7]

Protection of contributors

2.8 A number of comments referred to concerns around regulation of peer-to-peer accommodation, and several respondents perceived a lack of enforcement of existing regulations. These responses - all from organisations associated with traditional short-term accommodation - suggested that this resulted in a lack of protection for consumers. Several respondents suggested that authorities are not, or are not able to, adequately enforce existing regulations for peer-to-peer accommodation providers. This included reference to evidence which was seen as indicating inconsistency of enforcement activity between traditional providers and peer-to-peer accommodation providers. A traditional accommodation respondent also cited evidence that authorities are taking a reactive approach to peer-to-peer accommodation, rather than more proactive enforcement.

2.9 Concerns around regulation and enforcement included reference to a lack of defined guidelines or codes of practice for peer-to-peer accommodation providers. This was highlighted by some traditional accommodation providers, who noted that many traditional providers subscribe to voluntary guidance or codes, and that professional bodies exist to provide advice to these providers. It was suggested that there is a need for similar guidelines and sources of advice for peer-to-peer accommodation providers. This was cited as having potential to improve protections for contributors, and to help to address potential negative impacts on local communities associated with growth of peer-to-peer accommodation. This included a respondent who included a proposed code of practice for all short-term rental providers (including peer-to-peer accommodation) alongside their response to the call for evidence.

2.10 Some respondents also felt that insufficient requirements are placed on collaborative platforms to ensure that consumers are protected, and expressed concern that platforms do not perform any checks that accommodation meets safety regulations. This included a suggestion that collaborative platforms should ensure that accommodation providers are fully informed of the regulations with which they are required to comply.

2.11 Concerns around enforcement of regulations included reference to specific areas where some respondents felt that protections are lacking. This included some respondents who felt that consumers could be exposed to potentially significant risks. In this context, a business representative body associated with traditional accommodation providers suggested that consumer rights and protections should be identified as a specific theme for the Panel. Areas highlighted included:

• Ensuring properties meet health and safety requirements - particularly fire, gas safety, and food hygiene;
• Ensuring properties are appropriately insured - although an education respondent suggested that there is a need for new insurance models that are more appropriate for peer-to-peer accommodation;
• Ensuring that peer-to-peer accommodation providers and traditional businesses compete on a fair basis, in terms of enforcement of regulations;
• Ensuring that growth in peer-to-peer accommodation does not result in increasing house prices and rents, thus limiting local residents' access to housing; and
• Enabling consumers to identify whether the accommodation provider is an individual or a business - or in some cases to identify the responsible party for any complaints.

Balancing regulation with competition and innovation

2.12 Some traditional accommodation providers suggested that existing regulations should be adequate for peer-to-peer accommodation, and felt that traditional short-term rentals are already subject to strong regulation. However, a local authority respondent noted that existing regulations and legislation are yet to be tested in relation to peer-to-peer accommodation, and an individual respondent suggested that change to legislation may be required to ensure regulations are effectively implemented.

2.13 Several respondents suggested that, while regulations are in place, enforcement of regulations for peer-to-peer accommodation is insufficient. These respondents suggested that a lack of enforcement means that consumers, local communities and traditional accommodation providers are not sufficiently protected. This included reference to concerns raised earlier in relation to protection of contributors, regarding potential risks associated with any non-compliance with fire or other safety regulations. In this context, some respondents suggested that the protection of consumers, workers and the wider public should be a key principle for the regulatory approach.

2.14 In addition to the above noted points regarding the overall regulatory approach, respondents also highlighted specific issues for regulation of peer-to-peer accommodation - and the short-term rentals sector more widely:

• Suggestions that tax revenues could reduce as economic activity increases across the collaborative economy. This included reference to peer-to-peer accommodation benefiting from a higher tax threshold than more traditional accommodation providers, the structure of collaborative platforms meaning that relatively little UK corporation tax is paid, VAT only being due on the service fee element rather than the full accommodation cost for peer-to-peer accommodation, and concerns around the extent to which peer-to-peer providers declare their letting income.
• Concerns that discrimination is being permitted in relation to guests being accepted by peer-to-peer providers, in contrast with traditional providers. This included reference to commentary from a peer-to-peer accommodation provider suggesting that providers can pick and choose which guests to accept, and research evidence of discrimination in the peer-to-peer sector in the United States.
• A lack of information to support enforcement of regulation - including for example the number of individuals or businesses involved in providing peer-to-peer accommodation, but also wider issues such as quantifying any impact on demand across other sectors.
• Suggestions that consumers can be at a disadvantage where peer-to-peer accommodation providers are businesses rather than individuals - and that in these cases the exchange is not equal.

2.15 A number of respondents made specific suggestions for regulations and/or changes to support enforcement action:

• The creation of a register to support enforcement, where peer-to-peer accommodation providers are required to notify authorities of their properties and letting dates. This was related to a perceived need to ensure that peer-to-peer accommodation providers declare these properties as non-residential, and that the change of use from residential to letting is recorded to enable tracking of the volume and distribution of non-residential properties. It was noted that this approach has been implemented by a number of cities outwith the UK. Some suggested that this information could be linked to the forthcoming Scottish Private Residential Tenancy regime.
• A suggestion that Planning Use Class Orders should be used to allow for conversion of residential property to short-term rentals, potentially setting out potential short-let periods, and providing the basis for local authorities to monitor and regulate peer-to-peer accommodation providers.
• Ensuring that regulation and associated information is managed independently of the peer-to-peer accommodation sector, rather than relying on an industry voluntary code of practice.
• Some respondents felt that the regulatory approach in relation to peer-to-peer accommodation has been primarily reactive, and suggested a need for a more proactive approach. This included reference to the potential value of vetting of new businesses and business models as they continue to develop, for example in terms of improving trust and acceptance of the sector. A business representative made a specific suggestion for a flexible regulatory unit, with the detailed understanding of the peer-to-peer sector required to assist authorities.
• Suggestions that any regulatory changes should be developed in cooperation with businesses, to ensure that regulations are practicable.
• Recognising that many peer-to-peer accommodation providers are new entrants and as such are unlikely to be familiar with regulations.
• A suggestion that requirements should be placed on collaborative platforms to provide information to HMRC to ensure tax regulations are enforced for peer-to-peer accommodation providers.

Barriers to growth of the collaborative economy

2.16 Respondents highlighted a number of potential barriers to growth of peer-to-peer accommodation and the wider accommodation sector:

• Some respondents referred to negative perceptions of short-term rentals as a whole, and peer-to-peer accommodation specifically, and a lack of understanding of the collaborative economy. This included in relation to awareness of the potential benefits of the collaborative economy, and how peer-to-peer accommodation fits with more traditional accommodation forms and the housing market.
• A lack of awareness of peer-to-peer accommodation options available across Scotland was also cited as a potential barrier. This included some suggestions that awareness is often limited to Airbnb, and as such may act as a barrier to growth of other providers. This was raised in relation to restricting demand, but also limiting innovation if there is a lack of awareness of potential new models.
• Reference to different perceptions of the collaborative economy across accommodation sectors. This included reference to some traditional accommodation providers using collaborative platforms as a new route to market, and who are supportive of the collaborative economy and peer-to-peer accommodation. This group was contrasted with potential opposition to the collaborative economy from other traditional accommodation providers, including hotel operators.
• Perceived unfair competition between peer-to-peer and more traditional accommodation, and a need to ensure protections for consumers and communities were also highlighted. These issues were not necessarily raised as barriers to growth of the collaborative economy - indeed as was highlighted in relation to protection of contributors and regulation, some felt that growth of the collaborative economy has been accelerated by an unfair advantage. However, these were raised as issues to be addressed before the collaborative economy grows further.
• A suggestion that some care may be required in enforcement of regulations to ensure that growth in peer-to-peer accommodation is sustainable, and a suggestion that straight enforcement of regulations could have a negative impact on growth and potentially deter new entrants to the sector.
• Potentially limited access to finance to support development of new opportunities in the sector.
• Suggestions that accessibility of peer-to-peer accommodation options may be a barrier to growth in rural areas, where geographic constraints and more limited access to digital connectivity could have a negative impact.
• The lack of appropriate insurance options for peer-to-peer accommodation.

The role of government

2.17 Several respondents, including a mix of traditional and peer-to-peer accommodation providers, indicated a preference for limited intervention by the government. This included reference to regulation outwith the UK having led to increased hotel rates with a potentially negative impact on the tourism sector. A peer-to-peer accommodation provider also suggested that transparent, open peer-review processes used by collaborative platforms are effective and can support sustainable growth. Respondents also referred to recent European Commission publications which sought the removal of barriers and unjustified obstacles to development of the collaborative economy, and suggestions that the government focuses on reducing unnecessary burdens for peer-to-peer accommodation.

2.18 Other respondents saw a need for greater intervention from the government - this included traditional accommodation providers and an individual respondent. This was suggested in the context of ensuring protections for consumers and others, ensuring fair competition between traditional and peer-to-peer accommodation sectors, that the reputation of Scotland's tourism sector is maintained, and that taxation revenue is not undermined. This included respondents referring to examples of regulatory and legislative interventions across the United States and Europe which seek to manage the impact of growth in peer-to-peer accommodation. ^[8]

2.19 In terms of specific government interventions, respondents suggested the following:

• The government introduces the legislation required to ensure sustainable growth of peer-to-peer accommodation, and short-term rentals more widely. This included a suggestion for use of Planning Use Class Orders in the regulation of peer-to-peer accommodation.
• A simplification and easing of regulation for the smallest peer-to-peer accommodation providers was suggested. This included proposals for criteria to identify the providers who would be subject to regulation, and to ensure the regulatory approach is proportionate to the size of the provider.
• The government ensures enforcement bodies have the powers to identify and regulate peer-to-peer accommodation providers, and that bodies exercise their enforcement powers.
• The government places a duty on collaborative platforms to undertake some level of due diligence in relation to peer-to-peer accommodation providers.
• The government places a duty on collaborative platforms to ensure peer-to-peer accommodation providers are informed of the regulations with which they are expected to comply.
• The government promotes standards and codes of practice across traditional and peer-to-peer accommodation sectors, and works with sectors to ensure a suitable regulatory approach.
• Recognising the need for more information on the developing peer-to-peer accommodation sector, including the establishment of a register or similar mechanism to monitor the size and growth of the sector.