Posted by Roland Waddilove 19 November 2013
The rise of the sharing economy: rent out gadgets, cars and even your home
Put simply, the sharing economy is a way in which people can rent out things to each other. Things such as that spare bedroom, that under-used car sitting in the drive, those power tools in the shed or that Xbox no-one has played on in months.
What if you could find someone that needed somewhere to stay for a few days, a car to go somewhere, or a chainsaw, workbench or drill to complete a DIY project? You could help them out, prevent wastage of otherwise little-used items, earn some extra money, and feel good about providing a much needed service.
Of course, people can use traditional services like a hotel chain if they need somewhere to stay or a car hire company if they need transport, and so on. However, it’s cheaper to rent privately from someone with spare rooms, cars, tools and so on.
The sharing economy has really taken off in recent years and a typical example is Airbnb (right). This caters for two types of people. There are those with a house, bedroom, mobile home or even a boat that is unused. Then there are people that are looking for somewhere to stay, whether for a holiday, a business trip or something else. The Airbnb website, along with smartphone and tablet apps, matches these people up.
That’s really what the sharing economy is all about and there are many established websites and new ones popping up all the time offering to match people with things to rent with people looking to rent things. With CouchSurfing you can even rent out your sofa to people looking for somewhere to sleep. You can earn money and meet interesting travellers. Conversely, you can travel yourself, staying very cheaply in other people’s homes instead of paying expensive B&B prices.
Car schemes enable you to lend or borrow a car, and to offer lifts to find a lifts from someone driving where you want to go. At Buzzcar you can sign up and offer your car for rental or you can search the site for a car to rent. It’s currently available within France, but Zipcar.com and EasyCar.com are UK alternatives, albeit with a limited reach.
Rather than hiring a car, you can simply get a lift with someone going your way and sites that offer this service include BlahBlahCar and Carpooling. It doesn’t work if you live out in the country, but it is useful within and between large cities.
Is it coincidence that the sharing economy and these websites grew massively in popularity just as smartphones and tablets appeared? Probably not: apps for tablets and phones make it easy to find whatever you are looking for. You can search for places to stay, cars to share, tools and services for hire. GPS and satellite navigation on phones makes it easy to locate the car, house or person with whom you are dealing.
Many of the companies getting involved in the sharing economy have started with a limited service in one large city such as London, Manchester, New York or Chicago. When this is successfully they expand to include other cities. Services therefore tend to be patchy and not everything will be available where you live, especially if you are in the country or a small town. The sharing economy works best where there are large numbers of people with things to rent and people wanting to rent them.
The sharing economy sounds fantastic, but there are pitfalls to sharing your home, car or belongings and the whole sharing economy could easily collapse very quickly.
Make money by renting out unused equipment like this PS3 at uk.zilok.com
The sharing economy: Building trust
If you're booking a place to stay, how do you know whether it is as advertised? Can you trust the person enough to pay them in advance? Will you get what you paid for? If you’re renting out your house or a bedroom, how do you know the person renting it won’t trash the place and steal your belongings?
If you are renting your car out to a stranger there is the issue of whether they are a safe driver, whether they will stuff the McDonald’s take-away rubbish under the seat, or if they are a smoker. Will the person borrowing your power tools look after them? Will the power tools you borrow be in good working order?
Both parties in the sharing economy need to trust each other and this is usually achieved by reviews, reputation ratings and testimonials. As someone renting out a room, car, and so on, you need to be able to show good customer ratings and comments. As a customer you also need to build a good reputation. For example, you want to rent out your car to a careful driver and not to someone who mistreats the cars they hire. Customers with good reputations find it easier to book space, cars and other services. Bad reviews and ratings affect your ability to rent out things and to rent things yourself.
Some websites perform checks on the people using their services and car hire companies may, for example, check to see if you have any driving convictions before accepting you. Typically a deposit has to be paid and this encourages the renter to take care otherwise they will lose it. Problems are rare, but not unknown and one traveller was raped by the host she was staying with after using CouchSurfing.
The sharing economy: calculating the cost
Sharing websites need to cover their costs, so tend to charge a fee. Airbnb for instance, charges a 3 percent booking fee, so if you charge £50 a night to stay in your home and someone books it for four nights, you will be charged £6. Guests are charged booking fees too. Between 6 and 12 percent is added to the bill for staying somewhere and there are cleaning fees too.
If you rent out your home, bedroom, or power tool, or offer people lifts in your car, you will earn money and this means that you must declare it to the HM Revenue and Customs as income. So not only do you have to pay a listing fee on the website that advertises your services, you also pay tax and, at the basic rate, this is 20 percent.
It’s worth working out the amount you’ll actually earn if you are considering renting. Rent your car out for £100 using Buzzcar, for instance, and you’ll receive £70 from Buzzcar, then you’ll pay 20 percent tax, so you’ll actually get £54.
The sharing economy: are you insured?
What if you rent your car to someone and they have an accident? What if you rent out a room and the guest damages something or steals your laptop? Insurance issues complicate matters and they need to be examined carefully. If you rent out your car to someone, your insurance is unlikely to cover them and may explicitly exclude it. It is essential that you use a service that provides cover. Buzzcar does, but this is reflected in the site’s high fees.
Websites that specialise in matching car drivers making journeys and people wanting lifts often do not charge. This doesn’t mean the lift is free and it is a way of getting around the insurance issues. If you share the petrol money with someone then that’s fine, but you should not make a profit. Transactions are between the driver and the person getting the lift, not through the site. This could lead to disputes over payment, but a ratings system should weed out the freeloaders from the honest hitch-hikers. Airbnb provides insurance cover and it has a £600,000 host guarantee for people renting out rooms.
Share your car or rent at carclub.easycar.com – over 25s with clean license only
The sharing economy: Legal problems
Rules, regulations and legal problems could derail the whole sharing economy and it is not hard to see why. If you regularly rent out one or more spare rooms in your house, for example, are you a hotel? There are regulations governing hotels such as fire and hygiene regulations, and you may need guest house insurance, public liability insurance and a license or permit. It may even be expressly forbidden in your city.
Last year someone rented out his bedroom in New York via Airbnb and now his landlord is looking at fines of £40,000 for breaching hotel rules. The tenant may be evicted and lose his home. Some city authorities say Airbnb should pay the standard 15 percent hotel tax and, in Amsterdam, authorities are chasing people offering rooms because they say they are little more than illegal hotels that don’t have a permit or license.
It isn’t just Airbnb that has come under fire. Car sharing (lift) firms could be regarded as running taxi firms. If you arrange for a car to pick you up and take you somewhere for which you pay a fee, isn’t that the definition of a taxi? California issued fines against Lyft, SideCar and Uber for “Operating as passenger carriers without evidence of public liability and property damage insurance coverage.”
It is not known how many people declare their income from renting out rooms, couches, cars, and equipment, but the suspicion is that there are a lot and this is a concern for the authorities. They won’t turn a blind eye to this forever and they could end up forcing websites to reveal member lists and then chase people for unpaid taxes going back years.
There are many legal problems that need to be sorted out and sharing economy companies argue that traditional rules and regulations are outdated, but they face difficulties getting them changed. If you rent something out, check that you aren’t breaking the law.