In late September
2015, two proposals, which would to
add excessive regulations onto roomsharing applications such as Airbnb, were
proposed to the D.C. Council. Airbnb has been under scrutiny in
the past,
but it is often because states and municipalities, sometimes wrongly, claim
they are not receiving tax revenue from Airbnb transactions. However, in the
District, Airbnb has already agreed to collect and remit the full tourist tax
levied on short-term rentals.
It’s pretty clear
that these two proposals have been initiated by the hotel industry and its
employees in an effort to restrict competition in the marketplace. One proposal has been
supported by Unite-Here Local 25, a union that represents 6,500 hotel employees
in the D.C. area, and the other proposal was drafted by a
coalition of large hotels located in the D.C. area.
The D.C.
government requires individuals who share spaces for less than 30 days to
obtain a business license, but both of the draft ordinances would limit what
the license holder can do with his or her property. For example, the proposal
backed by Unite-Here only allows a host to share one space at a time and
requires that the owner/tenant be present while the rental occurs. The D.C.
hotel industry’s draft legislation allows a host to share up to five units at a
time but has strict requirements on the number of guests and the length of
their stay. The Unite-Here proposal allows for food and alcohol sales if the host
is properly licensed, but the hotel industry’s proposal prohibits such sales.
Public safety,
consumer protection, and food and health standards are often appropriate, even
necessary, regulations for state and local governments. But both of these proposals
go beyond simple standards and instead create costs that ultimately will
restrict competition from roomsharing applications and benefit the hotel
industry and its workers.
In a Perspectives from FSF Scholars entitled
“Eight Takeaway
from the FTC’s Sharing Economy Workshop,” I said that reputational feedback
mechanisms, which are inherent in roomsharing applications, enable trust
between trading partners and filter out harmful economic actors:
On Airbnb, hosts will use reputational feedback to
filter through strangers in order to find guests responsible enough to share a
living space with. Yet guests are just as likely to rely on this reputational
feedback mechanism to avoid unsafe or unhealthy living spaces. The transparency
provided by competitors’ ratings and reviews allows hosts and guests to easily
compare the trustworthiness of respective counterparts. Additionally, even if a
host or guest is a first time user, the accountability provided by reputational
feedback mechanisms incentivizes the user to be as responsible as possible.
Reputational
feedback mechanisms produce a self-regulating marketplace, so additional
government regulations would only levy unnecessary costs on consumers. In comments submitted
to the FTC in May 2015, FSF scholars discussed the importance of
policymakers to focus on consumer welfare, rather than the welfare of specific
competitors:
It is also critical that federal, state, and local
governing authorities alike remain closely attuned to concerns over consumer
welfare, rather than competitor welfare. Special or partial laws and
regulations designed to protect incumbent competitors from new sources of
competition, even if undertaken under the pretense of protecting competition,
are unjustifiable and will harm consumers. Hopefully, market incumbents opposed
to the proliferation of innovative and disruptive new Internet services and
applications will less frequently succeed in manipulating laws and regulations
to stifle sharing economy services merely because they possibly may adversely
impact preexisting businesses.
In the same Perspectives from FSF Scholars, I discussed why “deregulating
down” is a more efficient way for governments to establish the proverbial “level
playing field” between incumbent actors and new entrants:
Indeed, regulations and taxes should not be levied on
businesses differentially without legitimate reasons. As I wrote about in a blog earlier in June
2015, David Hantman, Head of Global Public Policy for Airbnb, and the FSF
scholars agree on that principle. However, subjecting new entities, like
Airbnb, to old regulations lessens the competitiveness of the market because
smaller firms and/or emerging firms are often not well-established enough or
profitable enough to cover the costs of such unnecessary burdensome
regulations.
To the extent there are concerns about the impact of
differential regulations not based on legitimate reasons, equity should be
accomplished by deregulating down, not by regulating up. Deregulating down
gives consumers the freedom to choose which businesses provide the most value.
As FTC Commissioner Maureen Ohlhausen stated during the workshop’s opening keynote address, “it is not for
us in government to pick the winners and losers in the marketplace.”
The restrictions
in these proposals make no sense when the impact they would have on the local
community is analyzed. They create costs that impede the ability of local
residents to act as entrepreneurs and provide more choices to lodging consumers.
For example, the hotel industry’s draft legislation says “a property
may not be rented out on a short-term basis if the owner has received
affordable housing funds or if the property is rent controlled.” This
requirement does not benefit the public or consumers; it simply eliminates less
costly lodging options, which only favors local hotels. If anything, roomsharing
should be embraced in these circumstances in order to reduce or offset the fluctuation
in housing investment that rent controls and subsidies can exacerbate.
Additionally, roomsharing allows poor residents to earn extra income.
It is important
that the D.C. Council not adopt either of the proposals. These proposals create
unnecessary costs for local residents and entrepreneurs. If adopted, they will reduce
lodging competition, lower income for residents, and raise prices for
consumers.
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