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The dark side of the sharing economy

2014-11-12 09:27:38

By Sara Eckel

A few years ago, a large event in Saskatoon usually meant more business for the Chaplin Country Bed and Breakfast in Saskatchewan, Canada. I m about 10 minutes out of the city, so when the city hotels and bed and breakfasts fill up, I would often get their overflow, said owner Kathy Chaplin.

But those days are over. As the popularity of home-sharing website Airbnb has grown a recent search found 48 listings in Saskatoon, ranging from $184 for an entire three-bedroom home to $41 to rent a couch in the owner s living room (bring a sleeping bag and pillow) Chaplin s business has slowed down. She has seen her business drop by 30% in the last two years.

The peer-to-peer economy think Lyft, Airbnb, Uber and Taskrabbit has been hailed as a great way for people to buy and sell goods and services directly to each other and bypass large corporations. The person renting out a guest room or a seat in her car makes a little extra cash, and the buyer saves a bundle over what she d pay for, say, a hotel or a car service. A win-win for little guys everywhere.

Or so it would initially appear. But it s not just hotel and transportation moguls who are being disrupted small innkeepers, cab drivers and other professionals are feeling the pinch as their friends and neighbours make extra spending money, charging far lower rates than the pros must bill to survive.

The veterans say that they are paying for taxes and licenses and abiding by regulations that their newbie competitors are able to avoid.

There are a lot people out there for whom it's a full-time occupation and if they don't have enough clients they will be out on the street, said University of London economist Guy Standing.

The Chaplin's bed and breakfast has suffered since Airbnb came along. (The Chaplins)

Contemplating career changes

In San Francisco, ride-sharing services like Uber, Lyft and Sidecar have decimated the taxi business. A report by the city s Municipal Transportation Authority found a 65% drop in taxi rides from January 2012 to July 2014.

For Barry Korengold, who has driven a cab for 33 years, the income drop has left him contemplating a career change.

I don t particularly appreciate having to think of another career when I m in my 50s, said Korengold, who has seen his income drop by 25% to 50% since January 2013.

The president of the San Francisco Cab Drivers Association, Korengold said many of his colleagues have been hit even harder.

A lot of these people aren t able to feed their families or pay their rent, he said.

He scoffs at the idea that they could all go to work for Uber or Lyft. It s kind of like the Wal-Mart thing: They come in and put the small businesses out of business and then everyone has to go work for Wal-Mart, he said.

Level playing field

The professionals affected by the app-enabled businesses say they aren t opposed to competition. The problem, they say, is that the playing field isn t level, as they are obeying regulations and paying expenses that the sideliners aren t.

Korengold said that in his city, taxi medallions cost $250,000 and insurance runs between $8,000 to $10,000 a year. All of the city s taxis must be hybrids or alternative-fuel vehicles, a roughly $10,000 added cost ride-share drivers aren t required to incur.

(Pablo Blazquez Dominguez/ Getty Images)

Hoda Mohtar, who owns Les Diplomates Executive Suites, a bed and breakfast in Waterloo, Ontario, said in addition to paying 13% in taxes, she pays to have her four-room inn accredited and inspected regularly. She also pays CAD$4,000 ($3,590) per year in agency fees membership fees, listings, inspections, conferences and about CAD$1,400 ($1,250) in insurance.

We do everything by the book and others are just opening shop, said Mohtar. I don t want to stop anyone from making money in the shared economy. But for them to not pay taxes, not to be legislated, not to be inspected -- that s dangerous.

Several Saskatoon Airbnb hosts were contacted for this story, but declined to be interviewed or did not return queries before publication.

Debbie Judt, owner of Glacier Park B&B in Saskatoon, shares her colleagues concern that some Airbnb owners might not be paying taxes, though she stresses that she doesn t know what her neighbours are doing and doesn t have a problem with the site in fact, about 5% of her business comes through her listing on Airbnb.

I wanted to be exposed to one of the biggest listing sites in the world because it s huge, she said.

Municipalities start to adapt

Eric Brousseau, a professor of economics and management at the University Paris-Dauphine, said the sharing economy is still in its infancy, but believes regulation will eventually catch up. He notes that when French farmers first began opening bed and breakfasts, they could do as they pleased. But now these inns are subject to regulations and standards like any hotel.

I think by the end you will have control of entry of the market just because it s needed, Brousseau said. That could mean everything from inspections to permit requirements to more rigorous tax-collection and professional standards.

That is starting to happen, as regulators are cracking down on both ride- and home-sharing. In the US, New York State Attorney General Eric Schneiderman issued a report stating that 72% of Airbnb rentals in New York City are illegal, violating zoning or other laws (short-term hotel stays must abide by more stringent regulations than those offering long-term rentals).

In San Francisco and Portland, Oregon, Airbnb now collects occupancy taxes for its hosts after housing advocates and neighbourhood groups pressed for stricter legislation. In Spain, Uber drivers caught taking passengers without professional licenses face fines of up to 18,000 ($22,500 USD). And, after a German court banned UberPop in Berlin and Hamburg, the ride share company dropped its fare to 0.35 euros (44 cents). A subsequent ruling permitted UberPop drivers to continue because officials believed those fares could only cover the driver s cost of operating the car and not yield a profit. In other words, they truly have to be sharing.

Fundamental shift

But Standing believes there is a larger problem: we are now seeing a fundamental shift in the way employment is handled around the globe. He notes that in the past, professionals of all stripes be they cab drivers or attorneys regulated their own industries by setting standards, pay rates, training systems, and the like.

Those old models of the guilds that lived for hundreds of years have gradually been turned over to being run by commercial interests, said Standing, who notes that outsourcing firms have been auctioning employment, from telemarketing to accounting, to the lowest bidder on the global marketplace for years.

The problem isn t new to creative professionals writers, photographers, disc jockeys who have seen technology-enabled amateurs drive down prices during the past decade.

During the early 2000s, British sports photographer Gareth Jones made a nice living taking pictures at rugby matches and other sporting events in Redding, Berkshire, garnering enough work to contract out to four other photographers.

Things began to change around 2007, when photo-sharing sites coupled with lower cost of cameras and higher quality equipment flooded the market with the work of hobbyists willing to sell their photos for very little or nothing at all or post them on public websites for anyone to use.

Say it was a rugby match. They would take a hundred photographs and two are okay. People are happy with that. It s not perfect, but it s good enough, he said.

After Jones saw his business drop significantly, he realised he had to make some changes. He now shoots events that require a higher degree of skill, like gymnastics competitions and bicycle races.

Jones can offer shots that less-skilled competitors cannot due to their lack of technical skill and training.

That s hopefully what separates the professional from the well-meaning amateur, he said.

At any rate, Jones bears no grudge. You can t stop things like that, he said. Sometimes it s better to embrace it.