Scottish expert advisory panel on the collaborative economy: evidence paper

2. Peer to peer accommodation

The first evidence session of the Scottish Expert Advisory Panel on the Collaborative Economy in June 2017 focused on short-term rentals and peer to peer accommodation. Agenda and minutes of the meeting, as well as any submissions received, are available online ^[11] .

a. Background

Short-term rentals and holiday homes are not new. They have been available for many years. However, the move into renting out residential accommodation through the use of digital platforms is relatively new.

PwC ^[12] describe peer to peer accommodation as households sharing access to unused space in their home or renting out a holiday home to travellers. They estimate that peer to peer accommodation, which includes peer to peer rental platforms and vacation rental platforms, as well as home swapping platforms, is the largest sector of the collaborative economy in Europe by transaction value, facilitating €15.1 billion worth of transactions. There are a number of global platforms that enable this service, with Airbnb having most prominence to date.

Peer to peer accommodation has seen unprecedented growth over the past decade transforming the accommodation sector and quickly becoming one of the largest and most debated sectors within the collaborative economy. Generally, three types of short-term lets are included in the peer to peer accommodation sector:

• Privately owned houses or individual rooms;
• Privately owned holiday homes; and
• Commercial lettings.

A number of drivers have been identified to explain the growth of this sector over the last decade, including:

• Exploitation of digital technology, which has lowered transaction costs and allowed consumers to become contributors to the collaborative economy;
• Changing consumer behaviour, with a focus on value for money and a desire for more ‘authentic’ tourist experiences; and
• Targeted tourism strategies, such as Tourism Scotland 2020, which aims to grow visitor spend in Scotland by £1 billion (from £4.5 to £5.5 billion) between 2010 and 2020.

The responses to the calls for evidence highlighted that:

• There are, unsurprisingly, strong differences in points of view, particularly with regard to the extent to which government and regulation should intervene in this sector;
• There is no one city in any one country that has found a magic bullet to solve these challenges or, indeed, fully exploit the opportunities; and
• The frequency with which the term ‘level playing field’ was cited in relation to the existence of regulatory differences between different kinds of short stay accommodations.

b. Scottish specific data

VisitScotland data highlights the different situations across Scotland, with large cities like Glasgow and Edinburgh attracting large numbers of visitors throughout the entire year, and rural areas and islands (e.g. Highlands, Orkney, etc.) experiencing a marked difference between summer and winter.

The following table and chart display the different occupancy rates of self-catering accommodations at different times of the year for these four selected areas.

Figure 1: Occupancy rates of self-catering accommodations in four selected areas during the May to October and November to April periods

Period	Glasgow	Edinburgh	Highlands	Orkney
May – October	67	76	69	65
November – April	59	54	33	14
Difference	9	22	36	52

Source: VisitScotland, Tourism in Scotland’s Regions 2015, October 2016

Figure 2: Occupancy rates of self-catering accommodations in four selected in each month

Source: VisitScotland, Tourism in Scotland’s Regions 2015, October 2016

In their evidence, Scottish Enterprise noted that “ in some rural locations, there is a short visitor season and therefore a lower incentive for full time visitor accommodations to be developed” and “ in more rural destinations, which may be seasonal in their nature and have less variety of visitor, trends can be harder to predict”.

A range of other statistics were provided by those who responded to the call for evidence or provided ad-hoc submissions to inform the work of the panel.

Peer to peer accommodation

Airbnb’s report “ Overview of the Airbnb community in Scotland”, published in March 2017 and covering the period between 1 March 2015 and 1 March 2016, provides useful insight into Airbnb’s community of hosts and guests in Scotland, and Edinburgh in particular ^[13] .

Airbnb hosts

• 12,600 hosts – of which 5,400 (43%) in Edinburgh
• Median annual earnings: £3,600 (£3,900 in Edinburgh)
• Median nights hosted: 40
• 76% rented primary or secondary home
• 41% relied on Airbnb income to make ends meet
• Listings by type: 58% entire home, 41% private room, 1% shared room
• Total income earned by host community: £68 million

Airbnb guests

802,000 guests ^[14] – of which 411,000 (51%) in Edinburgh (where there was 90% growth on previous year), with more than 70,000 during Festival

• Average length of stay: 2.8 nights
• Average travel party size: 2.5 people
• 87% visited Scotland for vacation and leisure
• 30% said they would not have come or stayed as long without Airbnb
• 45% from UK, 27% from Rest of Europe, 16% from North America
• 47% of guest spending occurred in the neighbourhood where they stayed
• Estimated total spent by guests using Airbnb in Scotland: £293 million

In November 2017, Airbnb also submitted to the panel a position paper on “ The Collaborative Economy and Tourism in Scotland”, which included a range of other statistics covering the year between 1 July 2016 and 1 July 2017:

• The average age of a host in Scotland is 48, five years higher than the average in the UK;
• 29% of hosts are in full-time employment, 15% are retired, 32% are self-employed;
• 54% hosts across Scotland (and 53% in Edinburgh) host in their property for under 30 nights a year;
• In Edinburgh, 21% of listings are booked over 90 nights a year, and 9% over 180 nights;
• There are 21,900 active listings in Scotland, out of a total of 168,000 in the UK (13%);
• 59% are entire homes and 40% spare rooms;

In the top five destinations (City of Edinburgh, Highlands, Glasgow City, Argyll & Bute, and Fife), 78% of hosts have one listings and 14% two listings;

• Across Scotland, 2% of hosts have five or more listings;
• The total economic activity generated by hosts and guests amounts to £499 million; and
• Guests spend an estimated £1.4 million per day in Scotland.

Short-term lets

In their submission to the panel, the Scottish Bed and Breakfast Association ( SBBA) compared the number of Airbnb hosts in Scotland (12,600) to the number of bed and breakfast accommodations listed on VisitScotland (2,100).

Figure 3: Number of self-catering properties in Scotland by Visit Scotland region

Visit Scotland region	Self-catering properties	%
The Highlands	3,982	25%
The Kingdom of Fife	2,356	15%
Edinburgh & The Lothians	2,045	13%
Argyll & The Isles	1,584	10%
Perthshire	1,568	10%
Scottish Borders	1,433	9%
Dumfries & Galloway	964	6%
Loch Lomond, Trossachs, Stirling & Forth Valley	746	5%
Greater Glasgow & Clyde Valley	394	2%
Outer Hebrides	293	2%
Ayrshire & Arran	268	2%
Aberdeen City & Shire	260	2%
Shetland	117	1%
Dundee & Angus	101	1%
Orkney	50	0%

Source: Frontline Consultants, Economic impact assessment of short-term lettings on the Scottish economy, June 2017, figures from Scottish Assessors Association

In June 2017, Frontline Consultants published the report “ Economic impact assessment of short-term lettings on the Scottish economy”, which was commissioned by the Association of Scotland’s Self-Caterers ( ASSC). This report provides a number of statistics in relation to short-term lets in Scotland, and the Edinburgh and Lothian area in particular. ( Frontline Consultants, Scottish impact figures are based on the 16,949 property figure in the Scottish Valuation Rolls database.)

Scotland

• 16,949 self-catering short-term let properties ^[15]
• 3.4 million visitor nights a year (of which 1.8 million non-Scottish)
• Annual direct visitor spent: £723 million (£470 from non-Scottish)
• Direct FTE jobs supported: 15,271
• Direct GVA contribution: £206 million

Edinburgh and Lothian

• 1,671 self-catering short-term let properties
• 424,785 visitor night a year (of which 396,217 non-Scottish)
• Annual direct visitor spent: £87.7 million (£81.8 from non-Scottish)
• Direct FTE jobs supported: 1,797
• Direct GVA contribution: £54.5 million

In their submissions, the ASSC indicated that 23% of all tourist visitors to Scotland stay in self-catering accommodation – from VisitScotland’s “ Scotland’s Visitor Survey 2015” (March 2016).

In addition, the ASSC noted that “ having investigated two perceived problems of short-term letting, loss of residential amenity and party flats, Edinburgh City Council’s own study ^[16] in 2012 found that these problems happen far less frequently than anticipated, and subsequently came up with a solution to deal effectively with any problems using Antisocial Behaviour Notices ( ASBNs) as enforcement”.

The ASSC also highlighted that only three properties in Edinburgh have been closed down as a result of complaint since 2015, that only 10 new cases related to complaints against short-term lets were raised in 2015-16, down from 14 in 2014-15 and 19 in 2013-14 ^[17] , and that more recent figures show that there were only 11 Short Stay Commercial Visitor Accommodation ( SSCVA) enforcement cases pending consideration in March 2017 ^[18] .

Hotel accommodation

Scottish Enterprise ( SE) and Scottish Tourism Alliance ( STA) referred to research done by STR Global, which found that:

• In 2016, occupancy in traditional hotel accommodation in Edinburgh, Glasgow and Dundee increased (despite net hotel supply growing by 1-5%);
• In Edinburgh, occupancy increased in each of the previous four years; and
• During the summer months of 2016, hotel occupancy in Edinburgh was over 90%.

Similarly, in their report ^[19] , Indigo House quoted research from LJ Research, which found that:

• January 2017 was the 13th consecutive month of growth in hotel occupancy in Edinburgh (and forward bookings for each of next six months were above previous year level);
• Occupancy growth was 2.4% in Edinburgh and 4.5% in Glasgow between December 2015 and December 2016/January 2017; and
• Continuous visitor surveys (sample of 1,000 visitors per city per year) show growth in the incidence of Airbnb in Edinburgh (4% in 2014, 6% in 2015, 9% in 2016) and Glasgow (1% in 2014, 3% in 2015, 5% in 2016).

c. Opportunities and benefits

A number of benefits were identified in the evidence submissions in relation to short-term peer to peer accommodation, such as:

• Individuals and businesses deriving revenue from their assets – and making better use of what would otherwise be under-used assets;
• Generation of additional employment in the local economy (cleaners, laundry services, etc.); and
• Potential taxation revenue, both directly from collaborative platforms, and from accommodation providers.

Respondents to the call for evidence emphasised the significance of short-term rentals (including peer to peer accommodation) for Scottish tourism, and the importance of tourism for the Scottish economy more widely. They also highlighted the current scale of short-term rentals and peer to peer accommodation, and anticipated future growth.

Increased accommodation supply. 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 that had previously had limited provision, and/or where there was unmet demand due to existing provision being at capacity. Opportunities identified in this area include:

• Extending the traditional tourism seasons with spin-off benefits for local businesses, helping them expand their service offerings (e.g. distilleries opening visitor centres); and
• Identifying and filling supply gaps in the market, taking pressure off hot-spots, and supporting local communities to develop year-long sustainable tourism strategies.

SE highlighted the importance of “ increasing capacity quickly during busy periods when existing provision is heavily occupied or cost prohibitive (e.g. Edinburgh in August)”. Similarly, the ASSC noted that “ short-term rental is particularly significant in certain cities and during certain key events in the Scottish calendar, with hosts making their homes available to cover the additional accommodation required, whilst making some extra income”.

More flexible supply. Respondents 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 may 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, and data held by collaborative platforms could enable accommodation providers to offer more targeted options, which may better fit with customer preferences. Opportunities include spreading capacity throughout the year and the country and facilitating ‘testing’ of innovative offerings.

SE noticed that “ in some rural locations there is a short visitor season and therefore lower incentive for full time visitor accommodation and facilities to be developed. The collaborative economy allows short-term accommodation and activities to be offered and the market to be tested for an initial period’; “ The collaborative economy can be a good way to quickly test and address new opportunities”. An example of this is the North Coast 500 touring route ( NC 500), where Highland Council noted that “ the peer to peer accommodation market has helped satisfy the level of demand”.

More diverse supply. Respondents suggested that the collaborative economy had helped to diversify the accommodation sector in Scotland and provide access to a broader range of accommodation types and price points, potentially attracting new visitor groups. They also noted that the collaborative economy provides new (and cost efficient) opportunities and routes to market to ‘traditional’ accommodation providers. Opportunities include:

• Fulfilling the growing demand for ‘unique’ and ‘authentic’ experiences. SE highlighted that “ sophisticated digital platforms, comprehensive marketing capabilities and high level of real time data insight allow providers to offer targeted and high quality customer experience – in line with the ambitions in the national and destination tourism strategies”. Highland Council noted that the “ provision of accommodation in more quirky properties or in areas previously not commonly visited can give the visitor a richer and deeper experience”.
• Benefiting both traditional and peer to peer accommodation providers. The ASSC noted that “ the new collaborative economy platforms offer traditional self-catering operators an alternative route to market and a wider audience, and are being widely adopted”, and Perth and Kinross Council observed the coexistence of “ a mixture of pure Airbnb private accommodation and actual commercial self-catering providers who are utilising this as an opportunity to access the market”.

Other benefits and opportunities identified by respondents are:

• Allowing individuals and organisations to supplement their income by renting out under-utilised properties, providing “ an economic boost to hard-pressed families, communities and businesses”, as suggested by the ASSC. Airsorted indicated that their hosts “use short-term property management services to supplement their income when they’re working away (e.g. working on the North Sea oil fields) or to gain extra income from their pied a terre in town”. The City of Edinburgh Council suggested that ‘ new streams of income in many cases will be spent in the local economy (multiplier effect)’ and highlighted it is important to “ ensure that residents can rent their properties on an occasional basis to provide themselves with an income and visitors with attractive value proposition; while not distorting the market by having an unfair advantage over regulated businesses”.
• Potential to generate additional taxation revenue and employment opportunities in local communities (e.g. cleaning and laundry). The ASSC noted that “ an area can be reinvigorated as a result of short-term rentals with spending in local pubs, restaurants, cafes, and shops”.
• Increased transparency thanks to “ peer to peer reputation systems that allow hosts and guests to review each other after a stay”, as suggested by Airbnb.
• Opportunity to learn from global examples of both success and failure to develop a clear and effective regulatory framework (e.g. case studies on individual cities in the Key Considerations background paper).

d. Challenges and barriers

Social impacts. Some respondents mentioned the risk that growth of peer to peer accommodation has a negative impact on local communities, with a particular focus on Edinburgh. This included references to increasing pressure on housing markets and associated rising house prices and rents limiting access to housing for local communities. A specific issue in rural areas was also mentioned, where seasonal staff might experience difficulty accessing accommodation due to homes and properties being turned over to tourists rather than workers.

Other potential negative impacts which were mentioned are antisocial behaviour and noise nuisance, concerns around the security of premises, a loss of the sense of community as a smaller proportion of properties are occupied by permanent residents, and a loss of amenity for permanent residents, if local services focus on the needs of temporary visitors.

For example, the British Hospitality Association ( BHA) suggested that “ the higher rents earned from short-term lettings reduce the availability of medium/longer term residential lettings”, and the Scottish Tourism Alliance ( STA) pointed to anecdotal evidence of “ shortage of accommodation for the seasonal workforce due to property owners who would normally provide seasonal rents switching to short-term let for visitors through sharing platforms”.

However, other respondents suggested that most of these concerns are the result of misconceptions and anecdotal evidence, and are not supported by the evidence available. For example, the ASSC pointed to the fact that “ having investigated loss of residential amenity and party flats, Edinburgh City Council’s own study found that these problems happen far less frequently than anticipated, and came up with solutions to deal effectively with any problems using Antisocial Behaviour Notices as enforcement”.

Striking the right balance between increasing tourist footfall and supporting sustainable local communities was highlighted, with SE noting the challenge of “ how to manage the visitor experience whilst also maintaining the ‘unique’ nature of Scottish destinations which are created by the people who live there”.

Misconceptions. Some respondents felt there was a limited understanding of the role of the collaborative economy. This included reference to misconceptions around growth in peer to peer accommodation having led to shortages and increased the cost of residential housing, having 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. Respondents referred to:

• Studies which have not found a link between growth in short-term lets 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;
• Research in Edinburgh which suggests that antisocial behaviour and loss of residential amenity associated with short-term accommodation may have been overestimated, and that any issues arising have been dealt with effectively; and
• Research which suggests that there is little evidence of short-term lets having a negative impact on the hotel sector.

In relation to this last point, it was noted that Airbnb tends to attract the end of the market that is undifferentiated and adds limited value (one to three stars hotels), while luxury hotels have the firewall of customer service. It was argued that Airbnb is, to an extent, gaining market share at the expense of ‘budget’ hotels in the same way as, in the past, ‘budget’ hotels gained market share at the expense of higher-end hotels. This could be seen as a natural evolution of the accommodation market.

Referring more generally to the limited understanding of the collaborative economy and the opportunities it entails, some respondents thought there was a lack of ‘vision’, and the ASSC noted the lack of “ a holistic view as to where the collaborative economy sits alongside traditional models and the housing sector”.

Tax implications. Some respondents raised concerns that the growth in peer to peer accommodation has not resulted in a commensurate increase in tax revenue. This included reference to collaborative platforms being domiciled outside the UK such that little corporation tax is paid; platforms generating relatively limited direct employment; and difficulties for tax authorities to enforce taxation legislation for peer to peer accommodation providers.

The SBBA identified four main drivers behind the potential loss of tax revenue:

• Hosts benefit from higher tax thresholds than bed and breakfasts and hotels (e.g. £7,500 tax-free allowance under the ‘Rent a room’ scheme);
• Some hosts do not declare their letting income, evading the tax due;
• Platforms are structured and managed so as not to pay tax in the UK; and
• VAT is only charged on the service fee component of the total accommodation cost.

In addition, some respondents were concerned about the different tax treatment of peer to peer accommodation providers as opposed to traditional provides, and about the lack of a ‘level playing field’.

According to the European Commission, an estimated 85% of gross revenue from collaborative economy platforms (of which peer to peer accommodation is the largest sector) goes to providers. This amounted to £68 million between March 2015 and March 2016. Individuals use multiple platforms to promote and book their accommodation and may earn income from multiple online and offline sources. As with any other income generating activity, on or off line, short-term accommodation rental providers are responsible for declaring their earnings to Her Majesty's Revenue and Customs ( HMRC).

Regulation and enforcement. Concerns about the lack of a ‘level playing field’ were also raised in relation to the wider regulatory and legislative framework. 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, and insurance.

For example, the SBBA claimed that “ there is no consistency of enforcement of regulations between traditional businesses and hosts selling via peer to peer websites”, that there is “ a near-total lack of enforcement of existing regulations on collaborative economy premises, whilst the regulations are enforced on traditional businesses of identical size and risk” and that “ competition is unfairly distorted in favour of the collaborative economy”.

Similarly, the BHA noted that “ the ability to enforce regulation is limited since data is not available from intermediary platforms” as “ online home sharing platforms are intermediaries. They take no legal responsibility for the services offered on their platforms and do not provide local authorities with details of hosts and properties operating in their areas. The result is an invisible economy, in which some hosts are able to operate outside the law”.

However, other respondents claimed that existing regulations apply equally to ‘traditional’ and peer to peer accommodation providers. These respondents made some reference to a need to simplify existing regulation, but suggested that a lack of proactive enforcement might be a more significant issue.

Short-term accommodation providers have taken steps to address concerns regarding lack of or insufficient enforcement of legislation and regulations. For example:

• Airsorted voluntarily follows many principles set out in houses in multiple occupation ( HMO) legislation, despite the fact that 95% of the properties it manages are exempt from HMO guidelines.
• The ASSC recommends that short-term/self-catering operators follow landlord regulations, and provides guidance sheets on regulations and legislation to its members.
• Airbnb sends an annual reminder to its hosts, “ notifying them of the need to declare their earnings if relevant, and pointing them to official sources of information”. It has also “ run home safety workshops with hosts and local fire services” and “ given out free smoke and carbon monoxide detectors to hosts”.

In relation to insurance, the University of Edinburgh noted that “ there is a gap in terms of available insurance models for individuals renting out property/rooms short-term, leaving many (often unknowingly) uncovered”. Airbnb indicated that it has “ pioneered bespoke insurance and guarantees for home sharing, providing all hosts with $1 million of automatic protection against property damage and a further $1 million of protection from claims by third parties for damage or personal injury”.

Perth and Kinross Council noted the challenge of achieving the right balance between “ a flourishing networked economy and the requirement for regulation to ensure good commercial practice”.

Other challenges and barriers identified by respondents related to the need to:

• Ensure that Scotland maintains its reputation as a high-quality, value-for-money tourism destination. SE noted that “ quality of provision and relevance to tourism markets is difficult to manage and influence when providers are unregulated and/or unengaged”.
• Differentiate between genuine peer to peer hosts and professional business. East Ayrshire Council noted how “ the collaborative economy has blurred the line between consumer and provider, the professional and non-professional provision of services” and “ may involve business to business, business to consumer, consumer to business and consumer to consumer transactions”. Airbnb highlighted that “ the European Commission urge member states to differentiate between individuals providing services on an occasional basis and providers acting in a professional capacity”.
• Raise digital capacity and skill levels to exploit the opportunities arising from the digital technologies underpinning the collaborative economy, and accessibility issues in terms of digital connectivity and geographical constraints (especially in rural areas). The City of Edinburgh Council noted that “ some geographical areas still suffer from poor networks and more investment in key digital infrastructure including digital skills is needed if Scotland is to take full advantage. There is also the significant issue of complete digital exclusion for up to 14% of the adult population of Scotland”.
• Identify tailored solutions that take into account local needs.
• Ensure that peer to peer platforms do not restrict the development of small businesses providing short-term accommodation, for example by ‘down-grading’ accommodation providers who wish to retain control over aspects of the letting process, e.g. by using their own cleaners, rather than those affiliated with the platform.
• Prevent hosts from discriminating against particular categories of guests, in breach of the Equality Act 2010.
• Ensure that finance is available to support the development of new opportunities in the sector.