Airbnb: Sharing, Disrupting or Predator?

Paul Sweeney13/02/2017

Airbnb argues that “Airbnb and our community are part of the new Collaborative or Sharing Economy, a movement that enables people to access new economic opportunities, promotes entrepreneurship, strengthens communities and conserves resources.”

Go live to the map above (Live only on computer)

I wrote a couple of blogs on what many call the "not-sharing economy" – Airbnb, Uber, Deliveroo - some 5 months ago eg here and here. I agreed that “some of the new tech firms are providing consumers with innovative services,” but also argued that they “are driving inequality through an increasingly fissured workplace.” Core workers are well treated in these firms, but the others, sometimes even the majority, are casual, insecure and not always well-paid either.

MNCs: no longer Job Machines

Today, the world’s top firms do not employ the high number of relatively well paid workers which big firms like the car firms did in the past, simply because they do not need the numbers, due to technology (Trump take note). Airbnb employed a total of just 2,400 in 2015 yet it was valued at $30bn last December (it is not a quoted company). It operates in 34,000 cities, has 2,000,000 “hosts” (including 1,400 castles) and 60,000,000 plus customers.

Its European Headquarters is here in Ringsend, reposing as an unlimited company (a deliberate loophole in Irish company law to facilitate no financial disclosure).

Fair Competition?

While Airbnb is not a big employer, it competes with small, medium and big employers in the rest of the hospitality sector like hotels and B&Bs. Does it compete on a level playing field?

I pointed out that almost 2,000 Dublin apartments were rented on Airbnb (now over 6,000 total hosts in the greater area, see below) while the taxpayer pays out €25m for hotel accommodation for the homeless. I then thought that the competition had been leveled, “as Airbnb hosts now have to pay income tax as trading income (not getting the €12,000 room rental break) here.”

However, it now seems that the Revenue is not yet on top of this new landlord class. They were unable to were unable to give a breakdown on how much tax has been paid “but reiterated that the provision of rooms through online accommodation sites such as Airbnb is subject to tax. It urged any hosts who have not declared such income to do so or face possible penalties” (Irish Times, 26 Jan 2017).

Airbnb in Dublin

Irish Airbnb commissioned this report which showed their landlords average €4,900 a year generating €275m in rental income in Dublin alone. The 6,100 landlords ‘host” over 400,000 visitors in Dublin for 3.2 nights on average. It should be noted that most of them share their main home and many use it to help them pay bills.

Disrupters vs Incumbents

The hotels sector is facing competition from Airbnb but the latter enjoys a major tax subsidy in a special reduced VAT rate (that the rest of us make up) and its not always a great employer as we know and as research by TASC has shown for its 137,000 employees. SIPTU has complained about this too. Dublin hotels are at 80% capacity regularly and it is estimated another 5,000 rooms are needed, so there is room for Airbnb too.

In spite of the subsidy, which is huge, hoteliers and caterers are laggards in decent pay and employment practices (though some are good employers). This VAT subsidy cost €500m in the four years to 2015 and it believed that the reductions have not been passed on to consumers.

In addition to this big VAT reduction, the state provides other subsidies through state companies which promote tourism. Some argue that subsidies to a booming sector are “deadweight” ie a waste of taxpayers’ money.

London Study of Airbnb

A Financial Times (2, January 2017) investigation found that “When you book an Airbnb room in London, around a third of the $100 saving you make over the price of an average hotel room is due to tax advantages that favour Airbnb’s business model.” A report from Morgan Stanley found that 49 per cent of Airbnb users in the US, UK, France, and Germany had replaced a hotel stay with Airbnb.

The company argues that the benefits of what it calls “home sharing” is to reduce costs for travellers and to help “hosts” earn extra income. “But hoteliers complain they face unfair competition, as a result of tax differences and gaps in regulatory enforcement of everything from hygiene to disabled access and fire safety” said the FT report.

The UK imposes fairly high rates of property tax on businesses and VAT on hotel stays, but allows generous tax exemptions for homeowners renting out rooms and for small businesses.

Thus in addition to possible income tax evasion by the renters, VAT may also give the disrupters like Airbnb an advantage over the incumbents. For example, homeowners renting rooms are entitled to the small-business VAT exemption which is fair enough. But the FT argues that “When they use Airbnb to go to market, advertise and administer payments, however, they partake in all the advantages of a huge global business. So long as they avoid VAT, they are at a big advantage to other large businesses. Crucially, that advantage is passed on to Airbnb.”

In London Airbnb will voluntarily begin to stop its London hosts from renting out homes for more than 90 days unless they have a permit from their local council. This was illegal but was not enforced. There have been similar moves in Barcelona, San Francisco, New York and Berlin.

Check Out this Map of Dublin’s Airbnb’s Renters

While the capital’s hotels are operating near full capacity some are critical of Airbnb because they believe that the operations are reducing room rentals. Here is a interactive map (linked above too) which sets out the number of Airbnb hosts in Dublin, thanks to Murray Cox. He is a New York community activist and technologist, who built this innovative and informative website.

The number listed in greater Dublin is quite striking at 6,225 (when I was on). Of this 4,931 hosts (including a room to let) are in the city, 633 in Dun Laoire, 450 in Fingal district and 211 in the Dublin South district. You can also zoom in and see which of your neighbours is listed on the website with some other information.

In a new book on Airbnb and Uber called The Upstarts Brad Stone describes their bosses. “Both CEOs seized the tremendous opportunities before them with steely determination, pausing just long enough to turn around and repair of some of the carnage and left in their wake.” It seen in earlier blogs that Uber is investing in driverless cars, but it is now also investing in flying cars.

Regulation chasing the disrupters

There is no doubt the Airbnb model has made travel cheaper for many. It has improved the use of homes and shaken up the booming hotel industry in Dublin. Whether the playing field against the incumbents, the hoteliers is level or not, is yet to be fully studied. The hoteliers have their fat VAT subsidies and many Airbnb renters may be tax-dodging (a subsidy). The company does encourage compliance with regulations, but the many hosts may not heed them.

Regulation, as always, is behind this innovative and fast-moving market and so is the Revenue. Cheaper and more accommodation comes at a price and it seems to be, as too often, workers in the disrupted industries are the ones who may be paying.

Posted in: Economics

Tagged with: airbnbhospitalityhotelsregulationSharing economysubsidies

Paul Sweeney     @paulsweeneyman


Paul Sweeney is former Chief Economist of the Irish Congress of Trade Unions. He was a President of the Statistical and Social Enquiry Society of Ireland, former member of the Economic Committee of the ETUC, a member of the National Competitiveness Council of Ireland, the National Statistics Board, the ESB, TUAC, (advisor to OECD) and several other bodies. He has written three books on the Irish economy and two on public enterprise, including The Celtic Tiger; Ireland’s Economic Miracle Explained and Selling Out: Privatisation in Ireland, chapters in other books and many articles on economics.



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