In 2013 a Halifax-based Mentorcamp, which matches mentors with startup companies, invited Haukur Gu_jónsson, the founder of a website based in Iceland called Bungalo, to come to Halifax for a few days and work as a mentor. He agreed.
These days, Gu_jónsson, 33, wonders whether Halifax is the right place for a business like his that sets out to disrupt the status quo. His fear, which others share (and not just in Nova Scotia) is that governments see disruptors as a threat, rather than an opportunity.While in Nova Scotia, Gu_jónsson looked around, and decided Halifax would make a perfect place to expand Bungalo, which he founded in Reykjavik in 2009. Bungalo matches cottages for rent with people who seek cottages. The company opened its Canadian office in Halifax last year, and now employs five people in that city.
On the one hand, BDC Capital, a federal crown corporation, has invested $150,000 in Bungalo. “They like what we’re doing,” Gu_jónssson says.
Provincially, though, Bungalo has a problem. The Tourism Industry Association of Nova Scotia, funded by its 1,200 members, has sounded the alarm over websites that match renters with accommodation, especially Bungalo’s much bigger competitor, Airbnb. The association now says it has teamed up with the provincial government to write new rules to rein in this direct trade in places to stay.
“We have regulations in this province that require a license for accommodations,” says Darlene Grant-Fiander, a spokeswoman for the tourism industry association. “Sites like Airbnb are a portal that has allowed a lot of unregulated product to get in front of customers. It has allowed the underground economy to really grow. You have an unlevel playing field. Licensed operators pay tax, and have requirements for fire safety and insurance, and submit a count of their guests. It is inequitable, unsafe, not fair.”
Quebec, too, plans to move against Airbnb this year; its tourism minister said this spring the province would table a bill this year subjecting Airbnb hosts and guests to the “same obligations” as hoteliers and their guests, adding, “a tax is part of the solution.”
That kind of talk worries those who want to help economies — in Atlantic Canada, Quebec and elsewhere — to diversify and become more competitive.
“People have a misconception that Airbnb and Uber are representing the Wild West,” says Sam Hammond of the Atlantic Institute for Market Studies, a free market think-tank based in Halifax. “This has nothing to do with protecting consumer safety. It has everything to do with protecting entrenched special interests.”
There is plenty of demand for a service like Bungalo in Canada, Gu_jónsson says.
“Less than one per cent of cottages in Canada are visible and bookable online,” he says in an interview from Reykjavik. “A lot of international travellers are looking for something unique. When I came to Canada I found it very difficult to book.”
Bungalo is able to bring more tourists to rural Canada by renting them cottages that offer a far different experience than the hotels people normally book, Gu_jónsson argues. “Instead of trying to ban things, try to make it work. I don’t think it’s possible to stop this kind of sharing economy.”
The tourism industry worries such opportunities will undermine the tax-paying, law-abiding hotels, inns, bed and breakfasts and campgrounds in Nova Scotia. Airbnb lists about 1,000 properties for rent in Nova Scotia; Bungalo lists 256 cottages for rent in Canada.
“Think about all the businesses that pay tax,” Grant-Fiancer says. “Government uses those taxes to pay for health care and education. All those properties that are not licensed are breaking the law.”
Bungalo takes payment from renters for cottages, and, after taking a cut, remits the rest to the cottage owner. Asked about taxes, Gu_jónsson says, “we pay tax on our commission/service and it is up to the owner to pay taxes on their income.”
Fear of new ideas may put a damper on innovation in general in Atlantic Canada. The C.D. Howe Institute studied a million patent applications in Canada from 1990 to 2012, and in a report last fall revealed the Atlantic provinces consistently underperform the rest of the country in per capita applications for patents. “We have never seen much economic dynamism in Atlantic Canada,” says Benjamin Dachis of C.D. Howe.
However, Hammond notes his region does have some innovators, at Dalhousie University, for example, although many of them move to Waterloo or Toronto. He fears efforts to control the sharing economy won’t help matters. “We are sending a signal to the outside world that we are not hospitable to genuinely disruptive technologies,” he says.
He contends, if his region sends the right signals, it can attract investors. “We live in a world with pretty global capital,” he says. “The capital goes where it sees the return. What dampens the return is regulatory risk.”
Governments hurt innovation in another way in the Atlantic region, Hammond suggests: paradoxically, governments deter creative thinking when they lend out too much money to startups, through the Atlantic Canada Opportunities Agency, for example.
“The tools governments use are not appropriate. Venture capitalists make a bet: high risk, high reward,” he says, adding when governments lend, “they don’t want it to fail.” As a result, small companies funded through government tend to play it safe so they can make payments, as opposed to taking the chances that could pay off big, he says.
Another problem for the Atlantic region in terms of innovation may be simply that the region is too sparsely populated, Dachis of C.D. Howe says. “Atlantic Canada is so sparsely populated, you don’t have a lot of people to bounce your ideas off.”
“You can’t do innovation on your own as Thomas Edison did.”
Gu_jónsson remains upbeat about the opportunities in Halifax and in Canada — as long as governments can be open-minded about new ways of doing business. “This is a market that is changing quite rapidly,” he says.
“If we start putting in laws or rules we will start missing out on opportunities.”