By James West. Source: The Globe and Mail.
Canada’s housing market is, and has been, on fire for the better part of a decade. On Bowen Island, British Columbia, some hundred or so families have reportedly left because their rental houses have been sold. As told to me by a local merchant, owners feel that they can’t afford not to sell with prices so high and the market so robust.
Coincident with this phenomenon is the rise of the sharing economy’s Airbnb, which removes another traditional source of rental options from the marketplace. The unintended side effect is that the transitory housing market is inflicting its higher pricing on the rental market, which makes renting almost as untenable for renters as ownership. Compounding the negative side effects, the hotel industry is suffering from reduced demand for accommodation, and strata councils and residents are miffed at the increased traffic of Airbnb turnover.
In the case of Bowen Island, which supports a full-time population of some 3,500 that balloons to as much as 7,000 when summer residents descend, the net result has been to transform the fabric of the community from an eclectic and diverse representation across the economic strata to an elite bedroom community where restaurants can’t find dishwashers.
The sharing economy, as it has come to be known, is about not needing to own assets because most of them are unused all the time, making temporary renting of assets more efficient — theoretically.
The reality, however, is that the sharing economy is distorting and destabilizing local economies, and disrupting traditional business models. What is happening in Canada is Canadians and the Canadian economy are being diminished as the profit from such operations flees to the United States while the newly disintermediated market imparts a negative economic impact.
In the case of Uber, the company’s business model is dependent on a persistent breach of laws whose tolerance seems to only be explainable by the company’s ability to continuously raise vast sums of capital which is deployed to lawyers and lobbyists.
While it is certainly an improvement to be able to summon a taxi by app, have the taxi turn out to be a brand new luxury vehicle, not have to tip the driver, and have hundreds of available drivers at any given moment, it will be interesting to see what happens when these new cars become old, and the drivers become jaded, insolent, and indifferent, and the company is eventually forced to comply with insurance laws and regulations. Will Uber survive? Most likely. Will it be profitable? That remains to be seen.
The company saw its US$100-million settlement with some drivers in the state of New York tossed out last week by a judge who said that the agreement, reached in April, where Uber had been set to pay up to $100 million in reimbursement damages to nearly 400,000 drivers, was unfair. The drivers first sued Uber in 2013, claiming that they should have been classified as employees rather than independent contractors of the company.
What is certain is that traditional taxi drivers have upped their game, though they still can’t generally deliver the convenience and luxury of an Uber experience. They now make less money, and Uber drivers are notoriously miserable with their earnings. The only positive Uber driver testimonials online are so obviously Uber-sponsored that they lack credibility.
The sharing economy is made possible by the ubiquitous nature of devices and connectivity. The disruption of traditional industries comes with an economic cost that renders dubious the idea that the change is for the better. The removal of affordable housing translates into an absence of workers. The proliferation of a bazillion new taxis means a lower standard of living for all drivers.
The longer term implications of the sharing economy are yet to be understood, but the early transfer of wealth up the food chain that is the net outcome is hardly something to celebrate.