August 27, 2014 by Paul Goldsmith
As the summer holidays come to an end, I wonder how many of you will have come back from a stay in an Airbnb property? If you have, I wonder how many of you realised the extent to which you were putting your life in your own hands? Airbnb is a fine example of the destructive power of the internet, but also of the dangers of allowing the unregulated to compete directly with the regulated. This will need to be changed soon.
Airbnb allows users to rent out their rooms to tourists. It has arranged more than 10 million stays in 600,000 rooms across 34,000 cities. You can find any type of place, and more importantly to many you get to stay right in the centre of a city without paying huge hotel prices. It gives a tourist the chance to pretend they are part of their destination’s fabric, instead of being a passing guest. The hotel industry have struggled to compete with this, and it has affected some, particular the smaller hotels. A Boston university study compared revenue data from Texas cities where Airbnb operates with those in which it doesn’t and found that for every 1% increase in Airbnb bookings, there is a 0.05% decrease in hotel revenue. In an industry that can have small margins, that is significant.
But, according to The Caterer magazine, the hospitality industry, whilst accepting that it is fair for them to be subjected to competition, are arguing that it is not fair that they have to compete in a playing field that is patently not level. David Weston, the CEO of the Bed and Breakfast a Association pointed out that his members have to have signs outsides their properties, are subject to inspection by fire regulators and food hygiene inspectors, have to pay for copyright for music and also pay liability insurance in addition to many other stipulations that grow every year. In contrast, someone can make money through Airbnb without paying for any red tape, and through that undercut those who do. Hotel consultant Melvin Gold said that “you can’t have something completely unregulated going up against regulated sectors – it’s not fair.” Weston adds that he has no problem with AirBnb, but that the regulators are asleep to the changes in the market and need to either abolish the regulations or apply them across the board, so everyone is competing under the same rules.”
It is likely that what will need to happen for a change to take place is a problem with an Airbnb property. Someone might get hurt, or a fire break out caused by a lack of an inspection. At that point the regulators may get involved. You might expect our politicians to get involved on the legislative front, but no politician in the year before an election will ask for regulation which adds to prices for people staying in the UK, particularly as Airbnb is a global website. It’s a bit like with Uber, the private cab company that is competing with black cabs but are far less regulated. Something horrible will have to happen before they get regulated more closely. Until then, life will be unfair for the hospitality industry, as it is for the black cabs. Free market competition is happening, but if one competitor is regulated and the other isn’t, it is not a free market.
Until then, the consumer wins….until one customer loses seriously. At which point there may be a large chorus of “we told you so”.