Scottish expert advisory panel on the collaborative economy: report

3.0 Tourism, Accommodation and the Collaborative Economy

Tourism is of growing economic value to Scotland and has moved up the media, political and popular agendas significantly over the last year. This is chiefly as a result of an upswing in tourist arrivals, which are set to increase dramatically over the next 10-15 years by current predictions.

Peer to peer platforms are offering an expanded pool of providers of short-term accommodation and the building of hotels is set to increase in 2018 in Scotland and more broadly across the UK. Consumer demands are changing too, with more people looking for interesting experiences while they are visiting.

Data from VisitScotland ^[5] shows that 23% of all tourist visitors to Scotland stay in self-catering accommodation accounting for 3.4 million nights per year, with an estimated direct gross value added contribution of £206 million. ^[6] These figures are exclusive of accommodation booked through platforms like Airbnb. VisitScotland indicate Airbnb accounted for 5% of all tourist accommodation in 2016. Self-catering accommodation is therefore an important component of the supply of tourist accommodation in Scotland and plays a key role in achieving the objectives of Tourism Scotland 2020.

Scotland needs to ensure that it maintains its reputation as a high quality destination, providing quality accommodation and tourist experiences, while balancing that strategy with a respect for local communities.

The remainder of this section primarily explores the key issues surrounding the rise of peer to peer, short-term accommodation provision in Scotland. To set some context for this, Airbnb provided the following data. ^[7] Airbnb is one of the main platform providers of accommodation in Scotland and this data gives some insight into the scale and type of short-term accommodation provision that is booked through collaborative platforms.

• As of 1 July 2017 there were 21,900 Airbnb hosts in Scotland. 9,000 (41%) of those were located in Edinburgh.
• On average, Scottish hosts earn £3,600 a year via the platform
• 76% of hosts rent primary or secondary home
• In top 5 destinations (Edinburgh City, Highlands, Glasgow City, Argyll & Bute, Fife), 78% of hosts have one listing, 14% two listings
• Average length of stay: 3 nights per guest
• Average travel party size: 2.5 people
• Total economic activity generated by hosts and guests: £499 million a year
• 802,000 total guests in Scotland ^[8] – 411,000 (51%) in Edinburgh, over 70,000 during Festival

In November 2017, Airbnb also submitted to the panel a position paper ^[9] "The Collaborative Economy and Tourism in Scotland", which included a range of statistics covering the year between 1 July 2016 and 1 July 2017:

• 54% of hosts rent their property for under 30 nights a year
• In Edinburgh, 53% for under 30 nights, 21% over 90 nights, 9% over 180 nights
• Across Scotland, 2% of hosts have five or more listings
• 55% rent entire home, 43% a room

3.1. Bringing the benefits to more existing Scottish businesses outside urban areas

It is clear that the provision of peer to peer short-term accommodation booked through digital platforms has increased over the past four years. This is in part due to new providers but also existing providers recognising the necessity and marketing value of posting their accommodation availability on platforms that have a global reach.

Some existing short-term accommodation providers are missing out on this opportunity, particularly those in highly rural areas and those who may not have high levels of digital literacy. An increase in digital literacy can only help spread the benefit of digitally driven tourism enabled by cheaper flights, which have been the biggest driver of increased tourism to Scotland.

There is a clear need to spread 'the tourism load' across Scotland. Encouraging the 'spread' of tourist footfall into other areas of Scotland would support more local economies, and will only be possible through increased digital literacy and engagement by the wider Scottish tourist industry. Limited broadband connectivity is also a key issue. Therefore, this panel underscores the clear need for high speed connectivity across Scotland.

It is critical to the growth of Scotland's tourism industry for businesses to take full advantage of the internet and digital technologies. Current efforts, through Digital Tourism Scotland, are focused on getting started (VisitScotland via its Quality Assurance Scheme), moving to competent level (Business Gateway via Digital Boost) and advanced (Enterprise Companies/Edinburgh Tourism Action Group). These initiatives run in parallel to the roll out of high speed broadband across the country and increased mobile coverage.

Recommendation

• The Scottish tourism industry must tackle head on some of the poor digital literacy and exploitation of digital marketing channels within the sector through accessing increased resources to continue current initiatives.

3.2. Create and promote more diverse tourist experiences across Scotland

In addition to increases in peer to peer accommodation, there has been a rise in new kinds of peer to peer tourist experiences. This is particularly prevalent in the rise of unique dining experiences, which has been highlighted as a mega trend for global tourism, and different kinds of tour guides such as Get Your Guide, Tours By Locals, City Unscripted etc. Any review of the tourism industry strategy Beyond 2020 should consider the opportunity which exists within the collaborative economy, assess the attractiveness to consumers and potential future demand of different kinds of tourist 'experiences'.

Recommendation

• More understanding, attention and support should be given to collaborative or peer to peer tourist activities that also attract tourists to less congested areas of Scotland.

3.3. Health and safety in peer to peer accommodation provision

The health and safety of guests in peer to peer accommodation rentals was of paramount importance to this panel. There are many different kinds of accommodation that should be - and are - dealt with differently. While the risk to anything going wrong in some instances can be low, there is no doubt that the impact can be fatal when something does go wrong. It is worth stating the obvious that it is in the interests of all tourists, and the responsibility of hosts, platforms and regulators for short-term accommodation rental to be safe and secure.

Recommendations

• Health and safety regulation parity across the rental of all short-term let accommodation that is not the owner's primary residence, regardless of whether the accommodation is let occasionally or regularly and regardless of whether the accommodation is booked over the internet.
• One code of conduct on which different industry associations can agree for all providers of short-term accommodation in Scotland where the owner is also a resident (though not necessarily present when the property is let). There are clear areas where the efforts of organisations such as the Association of Scotland's Self-Caterers ( ASSC) and the UK Short Term Accommodation Association ( STAA) can be brought together to achieve this.
• On all collaborative accommodation booking platforms, hosts should have to declare that they are compliant with the health and safety guidelines appropriate to their type of accommodation (in their locality/geography) prior to their property being listed. They should be presented with these guidelines at time of registering, rather than having to seek them out and should signify their adherence to those regulations. Platforms should experiment with ways in which guests can provide evidence of adherence.
• When guests book a property in a specific location the platform should highlight the key elements of local legislation to create greater awareness of rules and regulations.

3.4. Enforcement of health and safety regulations

The importance of providing safe accommodation to guests is not in question. However, enforcement of health and safety, and other regulations within the collaborative economy present some unique challenges. Industry led responses to tackling health and safety in the short-term and self-catering accommodation industries in Scotland have been proactive and are to be encouraged. However, each sector (tourist, transport etc.) has multiple platforms operating within it. So any form of self-regulation by the industry requires the compliance of all platform providers to be meaningful.

Secondly, consultation with local authorities show that enforcement of health and safety standards in peer to peer accommodation by government officials is not practical; there are neither the funds, nor public sector resources available for this enforcement work.

It should be noted that there is a much broader issue across the private rental sector with regard to health and safety that extends far beyond the collaborative economy, which is particularly prevalent in lower income households. The 2016 Scottish House Condition Survey ^[10] results show that 12% of all dwellings failed the healthy, safe and secure criteria in the Scottish Housing Quality Standard and, while there has been sustained improvement in the quality of private rented housing over the past decade, for the private rented sector the failure rate was 18%.

Recommendations

• All platforms operating in Scotland should ask participating guests if they have any concerns or questions about health and safety in homes or properties in which they stayed. Platforms should experiment with different messaging and times at which they solicit guests' responses to health and safety questions and should demonstrate to regulators that they have a process for following up any concerns identified in a timely manner.
• Local government and regulators should experiment with predictive analytics in high density usage areas like central Edinburgh, to target their very limited regulatory enforcement resources towards those properties most likely to be at risk. The use of predictive analytics has been highly effective in New York ^[11] to target (among other things) rogue landlords and properties at risk of fire, for example.

3.5. Separating peer to peer rental from running a business

As highlighted previously, there are many different types of participants in the collaborative economy, and many different platforms. Because of this, there is a challenge in separating out occasional providers of accommodation through digital platforms and those who are generating significant income, often renting out multiple properties.

There are two issues here. Firstly, the need to appropriately classify what counts as peer to peer rental (as distinct from running a business ^[12] ) in order to collect the appropriate taxes and classify properties appropriately in terms of any 'change of use'. Secondly, is the need to address issues that arise in specific areas where high density tourist footfall and the concomitant existence of short-term accommodation is affecting local communities.

Local taxes to fund local authority expenditure are devolved under the Scotland Act 1998. Dwellings are subject to council tax, and non-domestic properties are subject to non-domestic rates (sometimes referred to as business rates). Self-catering holiday accommodation is liable for non-domestic rates if, broadly, it is not someone's sole or main residence and it is made available for let ^[13] for at least 140 days per year (on a commercial, 'for-profit' basis); otherwise it is liable for council tax.

The thresholds for what constitutes being liable for business rates as opposed to council tax exists already in instances where a property is being rented where the owner is not also resident.

However, the cities of Edinburgh and Glasgow, which experience high volumes of tourists seeking peer to peer accommodation relative to other areas in Scotland, do not have legal thresholds for what constitutes 'change of use' for properties in instances where the owner is also present, or where the property is someone's home and is being rented out occasionally as an entire house or apartment.

Recommendations

• Resource the collection of an evidence base in considering restrictions on short-term rentals – taking into account the number of dedicated lets in any given area, the impact on rent/housing costs and the cost/benefit of loss of economic benefit to renters and the local areas.
• If the evidence base demonstrates a need, the City of Edinburgh Council specifically – and other large Scottish cities generally – should experiment with the implementation of a 90 day restriction on any person wanting to rent their home/property over the course of a 12 month period and refining accordingly. Exceeding the specified limit would require a change of use.
• Platforms should notify hosts at the point at which the 90 day limit has been reached.
• Explore the viability of a seasonal system in central Edinburgh, where the rules are more permissive during periods of large tourist demand ( e.g. Festival and New Year) where existing capacity cannot meet demand – but more restrictive in other parts of the year, where demand is lower and needs to be managed more carefully.

3.6. Impact on local communities

Peer to peer accommodation can be helpful to respond flexibly to increased tourist demand at peak times, without requiring significant investment in new hotels/tourist infrastructure. There are also some industry reports which show peer to peer accommodation extending tourism into new parts of cities and regions.

However, there were strong responses from our call for evidence which showed that certain cities, specifically Edinburgh, were suffering from increasingly heavy footfall of tourists that some local groups feel have a negative impact on the community. The rise of peer to peer accommodation at peak times was seen to be adding to this negative impact.

There is clearly a delicate balance to strike in preserving the fabric of communities and accommodating tourists who are attracted to major city centres in Scotland. We do not wish to see the hollowing out of communities in cities, or a growing rise in aggression towards tourists – as has been seen in some other popular European cities like Barcelona.

It is necessary to separate out the concerns arising from increased tourism at peak times within city centres and specific complaints in relation to peer to peer accommodation. Edinburgh hosted a total of 14.36 million nights in 2015. ^[14] There were 12 recorded short-term let premises with anti-social behaviour investigations in 2016 and 20 in the year to November 2017. While these numbers seem small relative to the tourist footfall, information provided from the City of Edinburgh Council indicates that this issue is significantly under-reported.

Recommendations

Greater experimentation in tackling some of these issues is needed. The recommendations below require resourcing. It is recommended that support from the Scottish Government in resourcing experiments, would reap longer term rewards and the intelligence on how to act in similar cities/circumstances.

• A specific experiment in one Scottish city that seeks to understand the impact, consequences and opportunities that arise when a provider is required to notify the council that they are renting out their property.
• Communities and residents need to be aware that they are able to make complaints and how to do so. Edinburgh specifically could consider a community conduct code and the residents could be asked to report situations outside of the code. This will build far more targeted and specific responses to issues arising in specific communities.
• Undertake structured community engagement to increase community participation in decision making, recognising that communities are made up of both those who share their homes and those who don't.

Cities which have decided to grapple with the challenge of managing the supply of peer to peer accommodation have responded in different ways (where they have responded at all).

• Some cities have responded by requiring a provider to register with a local authority before renting their accommodation; a licensing system effectively – as a way of controlling supply of peer to peer accommodation. This requires the city to have a clear sense of what mix of accommodation is optimal to meet its tourist needs; and it is for the city to decide this.
• Some cities have opted for a requirement to notify the local authority, rather than specifically be issued with consent to act.
• Some cities have prohibited the listing of more than one property per individual. Airbnb lists the cities stipulating this rule here. It does not take account of the possibility of a provider utilising different platforms for advertising different properties.

3.7. Income tax

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/hosts. 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 offline, short-term accommodation rental providers must be responsible for declaring their earnings to HMRC.

People who make money from short-term accommodation rental platforms are able to earn up to £7,500 tax-free by renting out a spare room in their house, under the "rent a room" allowance, which was raised last year from £4,250. ^[15] The UK Government has announced its intention to consult on this. In March 2016, George Osborne also launched two new annual tax allowances for individuals of £1,000 each, one for trading and one for property income. These new allowances take effect from tax year 2017 to 2018.