SINGAPORE (Apr 16): On April 3, two former property agents were fined $60,000 each for short-term rentals they had posted on Airbnb. The two men had collected $19,000 from four listings at the d’Leedon condominium over five weeks last year. The action was taken after residents at d’Leedon lodged complaints. Local regulations prohibit rental agreements of less than three months for private properties and less than six months for HDB flats. The fines are likely to send a strong signal to the 1.4 million registered users of Airbnb.
The concept of taking in boarders to augment one’s income is hardly new. Airbnb takes its name from “bed and breakfast”, a term once used to describe an overnight lodging in a private home. Some sources date the term to the Georgian era, when it became fashionable for the English to take curative visits in spa towns. Demand for accommodation led locals to open their homes to these visitors. The B&B industry was further spurred when steam trains brought holiday travel to the seaside towns. And after World War II, Americans travelling to Europe created a hospitality boom.
While some B&B operators were landlords of multiple properties, many were widows or retirees hoping to make some additional income. Later, the B&B establishment acquired a reputation as an affordable accommodation option that offered sophisticated travellers a personal touch. However, the advent of the internet has facilitated the growth of such informal hospitality businesses to a level at which it is having a significant impact on communities — in good and bad ways.
“In Singapore, a typical host rents [his or her] place 39 days a year, keeps 97% of the money and makes about $4,800 a year. Our hosts generate $111 million in economic activity in Singapore, and $77 million is attributed directly to the hosts,” says Chris Lehane, head of global policy and communications at Airbnb. According to Airbnb, 51% of hosts in Singapore are women. Last year, they earned $36 million putting their homes on the market. The fastest-growing host demographic has been seniors aged 60 and above. In 2017, they made up 12% of all hosts worldwide.
On the other hand, having a steady stream of short-stay guests in a condominium or HDB block weighs on their facilities and infrastructure, and creates uneasiness among genuine residents. Indeed, a 2015 public consultation exercise by URA on whether short-term stays should be allowed for private properties received a mixed bag of responses.
“The results of the public consultation did not [show] a clear consensus. On the one hand, there was acknowledgement of the need to accommodate the demand for shortterm home-sharing. On the other hand, there was strong endorsement of URA’s existing controls on subletting, which are intended to preserve the privacy and sanctity valued by the vast majority of homeowners. There was also feedback on the need to address taxation issues and various regulatory requirements to ensure the safety and well-being of occupants,” URA says.
Innovation coming unstuck?
Airbnb is not the only product of the sharing economy that has faced challenges to its business model. Ride-sharing app Uber faces criticism for taking away jobs from taxi drivers. Bicycle-sharing companies have been blamed for wanton bicycle parking. Is regulation the answer? Or would rules end up stifling positive innovations?
Sarah Cheah, associate professor at the department of management and organisation in NUS Business School, National University of Singapore, says: “Innovation has been regarded by many as a panacea to our social and economic problems. However, innovation can also bring about side effects that may not be apparent from the beginning but may become more severe if left unregulated.
“To some domains of society that have experienced the benefits of the innovation, regulations would be stifling and even backward. To others that have been negatively [affected] by the same, government intervention would be long overdue.”
Leslie Chew, senior counsel and law dean at Singapore University of Social Sciences, says: “In the context of space-limited Singapore, a measured approach towards something that affects our land use and, in turn, our social fabric — even if it risks lagging behind — is not necessarily bad. We must always look at the issue holistically and not just in commercial terms. Our measured approach may even enhance our reputation for approaching things responsibly.”
Regulation is not necessarily bad for innovation, says Boh Wai Fong, professor of information technology and operations management at the Nanyang Business School, Nanyang Technological University. “There are many examples in which regulations cause companies to innovate. For example, Singapore’s policies to reduce manpower have caused companies to come up with various innovations to overcome the manpower constraints. In some cases, antitrust rules and competition prevent monopolies from forming and encourage more innovation. For example, Microsoft’s antitrust case in the past has allowed current innovation in the internet space,” says Boh.
“On the other hand, there are examples where lighter regulation can allow initial innovation to flourish — just as China’s fintech space has flourished largely because of a light touch of regulation at the beginning. The question, however, is whether this home rental space is really something that is at the beginning stages, or whether regulators feel that they have collected sufficient information and seen sufficient examples in other countries for them to decide to take action.”
Real estate a sensitive topic
Real estate is a particularly difficult topic in land-scarce Singapore. Cheah of NUS says apartments could end up being rented to tourists rather than residents. “If left unregulated, these would push up home prices and rental rates in various ways. Motivated by attractive short-term rental yields, property owners may invest in renovation in anticipation of getting higher rentals, leading to gentrification that will raise property values but displace low-income home buyers,” she says. “Rising home [rents] could also attract investment in rental properties from commercial operators that will have deeper pockets and stronger resolve to support price hikes than genuine home buyers. Such issues will certainly affect the cost of living.”
Cheah points out that cities in Europe and the US have implemented regulations on short-term rentals, owing to the massive increases in property prices and rental rates. For instance, a third of Barcelona’s residents are tenants, and their rental rates have risen more than 20% in the past three years. The city has imposed a hefty fine on Airbnb for listing illegal apartments on its platform. In Santa Monica, California, primary residents must register for a business licence and collect occupancy tax if they put a listing on Airbnb.
Airbnb is responding to government and community concerns around the world. Lehane says the platform has developed more than 400 regulatory partnerships, working with governments to evolve policy and pay taxes. It prohibits listings in certain quarters and helps landlords understand the platform.
“In New Orleans, they didn’t want any vacation activity in the French quarter, a typical hotel district, but wanted it in the rest of the city, because they saw it as a way to spread the benefit of travel to the city,” Lehane says. For Chicago, Airbnb implemented registration systems to allow the government to remove properties that are the subject of repeated noise and nuisance complaints. “What we’ve really done is develop a set of tools for governments to [decide] how much of that commercial activity they want.”
Rather than penalising home sharing, Lehane is hopeful the local authorities will come up with a similar compromise. “It would make more sense to come up with a framework here that is consistent with where the world is going. You’ll have a different economy in the future. [You need to] make sure you have a framework in place so that the future economy will continue to work for people in the future, and that includes making sure home sharing is working here.”
URA is already working on another public consultation. “Part of this exercise will also involve working with representatives of home-sharing platforms to ensure that the framework is robust and addresses the concerns of both residents and industry stakeholders,” it says. “While there is a place for short-term rental platforms in Singapore, what the government intends to do is carefully review and consider safeguards in place to ensure that such rentals do not negatively affect the amenities of residential estates.”
The Singapore Tourism Board is hopeful that positive changes are underway. “We note that [the Ministry of National Development and] URA are not shutting the door on short-term rental but have plans to review certain parameters where it can be allowed,” says Ong Huey Hong, director for hotels and sector manpower at STB. “While we note that there is a growing segment of travellers with a preference for local homestay accommodation options that allow for a more authentic and immersive experience, we also recognise the need to preserve the residential character of homes, which is valued by homeowners. The needs and considerations of all stakeholders must be balanced.”
This article appears in Issue 826 (Apr 16) of The Edge Singapore which is on sale now
