In some ways, this was not news. The fact that the room rental service had been technically illegal in the city did not stop thousands of homeowners and travelers from taking advantage of the Internet platform. In fact, as many as 5,000 San Francisco rentals are available on Airbnb on any given day. But the short-term rentals were violating city laws that classified them as businesses and therefore not allowed in residential zones. The new law creates a safer environment for Airbnb users and will contribute millions to the city’s tax coffers.
This does not mean following New York’s lead. The New York attorney general recently came down hard on Airbnb. A report from New York Attorney General Eric Schneiderman, based on subpoenaed information, showed that 72 percent of all Airbnb listings in New York City are considered illegal under the state’s Multiple Dwelling Law or city zoning laws. Those rentals accounted for approximately
$304 million in revenue over the past four years. Furthermore, Airbnb is big business in New York where more than 100 renters own more than 10 units each and illegally generate millions of dollars in revenue.
The A.G.’s reaction: increase enforcement against so-called “illegal hotels.” In other words, they’re breaking the law. Shut ’em down.
New York would do better to view this as an opportunity, just as San Francisco did and brand home sharers as entrepreneurs instead of law breakers. After all, they are opening new space in a crowded city where the hotel occupancy rate is 88 percent.
All over the country, cities and states are trying to figure out how to manage the new sharing economy where instead of dealing with organized corporate entities that own taxis and hotels, we have a world where everyone can be an entrepreneur using online platforms that connect providers and customers.
There’s no question that this new world is disruptive. One study found that in Austin, Texas, Airbnb had negatively impacted lower-priced hotels by 5 percent, while companies like Uber have caused a drop in cab rides over the last two years in San Francisco.
But whenever there’s a seismic business shift, modernization of antiquated business models and processes is right around the corner. As an elected official or regulator, that doesn’t mean you do everything possible to keep things the way they were. Instead, adapting to the new reality, just like the San Francisco Board of Supervisors did, is a commonsense approach to 21st-century governance.
And it’s not limited to a tech-forward city like San Francisco.
In Illinois this summer, Gov. Pat Quinn vetoed a bill passed by the state legislature that would have ended surge pricing, required drivers who work more than 18 hours per week to get chauffeurs’ licenses and required cars be less than four years old.
In Colorado, Gov. John Hickenlooper recently signed a bill into law that requires background checks for drivers and ensures that drivers have adequate insurance — allowing shared ride services to flourish.
In Washington, D.C., on Oct. 28, the council passed a model law that established a regulatory framework for ride-sharing platforms like Sidecar and Uber. Under these rules, drivers must be 21 years old and pass criminal background and driving history checks. They also must have liability insurance and register with the D.C. Taxicab Commission.
Despite advances, it doesn’t mean that there will not be defeats even in the most progressive areas. In California, the Public Utilities Commission has been a leader in crafting smart regulation for the sharing economy. In fact, it initially gave a thumbs-up to rideshare companies, insisting (sensibly) that they require drivers to have background checks and that they carry extra liability insurance.
But when the car companies evolved to start offering carpooling services (where a driver can pick up two customers traveling in the same direction and drop them off at different locations), the commission got draconian, insisting that the companies were violating car carrier laws. The Los Angeles and San Francisco district attorneys quickly jumped into the fray, sending out threatening letters.
Instead of shutting down carpooling, the CPUC should study how it can create a regulatory framework that allows for innovative business models that are good for entrepreneurs and the environment while protecting the riding public.
This approach will help the shared economy grow in a way that protects customers and providers. Make no mistake: Until this new business approach matures, there are going to be many more fights in state legislatures and city council board rooms about how best to maintain a level playing field in previously regulated industries. While these battles are critical to the financial health of the new entrants upending old models, they also are important in ensuring that we all can reap the economic benefits of these innovative new technologies. Regulators can’t lose sight of that.
Mike Montgomery is the executive director for CALinnovates.
This story was originally published by TechWire.
