Regulatory Tension of the Sharing Economy

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Airbnb is in talks to settle a suit in which they sued New York City and New York state after Governor Cuomo signed a law that would impose fines on Airbnb hosts that break local housing regulations. According to a Bloomberg article, people that advertise vacant apartments in a multi-unit building for 30 days or less could be fined as much as $7,500 (for repeat offenders). People are still allowed to rent out a room in their house or apartment as long as they are also staying there.

The settlement of Airbnb’s suit concerns whether or not the company will be liable for fines incurred when users of its platform break local regulations. Airbnb claims that the new law seems to target its company and violates Section 230 of the Communications Decency Act, which protects Internet intermediaries (such as Airbnb) from being held liable for content published by its users on its platform.

My city of Austin, TX has seen similar regulatory tension this year. In February, the City Council imposed regulations to restrict short term rentals that are not owner-occupied, limiting Airbnb and Austin’s own darling, HomeAway, from operating in the city. In May, Uber and Lyft lost Proposition 1, which aimed to let the two TNCs (transportation network companies) self-regulate background checks for their drivers. In a fairly tight election, Austin citizens voted 56% against Prop 1 and 44% for it – leaving it to the city to run the background checks on drivers. Uber and Lyft left Austin’s city limits instead of complying with the new law.

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What we’re seeing is a natural tension between fast innovation in the private sector and slow evolution in the public sector. Regulators at city, state and federal levels are grappling with how to manage the changes brought forth from companies in the sharing economy. These companies are eliminating wasted capacity at a rapid rate, and that can have some positive and negative side effects. A frequent complaint around Airbnb and HomeAway is from neighbors of the apartments or homes that are being rented out – that the guests at these short-term rentals are disruptive. On the other hand, Austin saw a 12% drop in drunk driving crashes after Uber came into the city, and then saw a 7% spike in drunk driving incidents immediately after Uber and Lyft left the city.

Personally, I believe that the benefit derived from these companies outweighs the negative impacts. But, I do believe these companies need to strike a balance between entering a market and proving customer demand, and proactively engaging regulators to find a reasonable long-term regulatory framework for operating these new business.

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