Now that Airbnb has won over San Francisco, other regulators are watching closely

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Credit: Image courtesy of Airbnb

A tiny bit of history was made yesterday, as San Francisco legalized parts of Airbnb’s business. Although a small development, it represents a symbolic victory for the company, and, as a result, the sharing economy at large. Each urban triumph paves the way for future legalization in other places. San Francisco, the home where Airbnb matured through a rocky adolescence, is no small step on the road to mainstream acceptance.

The implications for San Francisco’s Airbnb legalization aren’t clear-cut. Perhaps it will make some cities more likely to consider passing laws in apartment sharing’s favor. San Francisco has willingly offered itself up as a testing ground. The rest of the world can watch and see – does legalizing Airbnb in this way hurt the city and raise rents by limiting available living spaces? Or does it give current residents a much-needed cash flow, encourage tourism, and raise more money for the city through the hotel tax? With a framework to follow, legalizing apartment sharing looks like less of a daunting challenge.

Conversely, San Francisco’s move could motivate other city governments to crack down on Airbnb hosting or risk the company currying public favor bit by bit until it can’t be stopped. New York City, for one, shows no sign of budging even with San Francisco’s recent repentance. Both cities have a storied history of housing rights activism, and in Manhattan the hotel lobby and tenants groups have so far proved too strong for Airbnb to break. Only a few weeks prior to San Francisco’s legalization, an anti-Airbnb group in NYC created a “Share Better” campaign to inform the public of the company’s negative effects on affordable housing.

Although some publications and Airbnb’s blog heralded the SF legalization as a victory for the company, it’s not a victory without costs. Permanent residents – excluding those who rent out individual rooms while they still occupy their place and those whose San Francisco homes are vacation units – can only rent out their apartments 90 days of the year. It’s more than enough for the casual Airbnb host, but there was an underbelly of people renting out apartments year-round to make money.

It’s a practice that Airbnb has always denied existed, but a survey by the San Francisco Chronicle found that 160 of Airbnb rentals in the city appeared to be year round. With that practice now outlawed, that’s some chunk of Airbnb’s profits gone (assuming the city manages to enforce the new law). It’s not clear whether such year round rentals are more prevalent in a tourist destination like San Francisco and are less likely in other cities. Furthermore, Airbnb may lose potential hosts given the new legal requirements, which make hosts pay a $50 city registration fee and get a $500,000 liability insurance policy.

Still, despite the potential drawbacks there’s no ignoring the fact that this was a big win for Airbnb, the sharing economy, and startups in general. It would have been a substantial blow to all of the above if Airbnb had been knocked down in the city or forced to pay back taxes.

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Randy Stortroen

The sharing economy, absent marketing speak, reminds me of nothing so much as the race to the bottom (RTB) hypothesis, with its emphasis on regulatory arbitrage. Airbnb is just the latest example. Of course, Uber’s evasion of regulation by local taxi commissions by appealing to the state utility regulator for TNC status is a classic case of arbitrage, a move only notable for its transparency.
San Francisco’s politicians are so besotted with the venture capital and technology combination, they have let themselves become “patsies” in this game (referring to the aphorism often cited by Warren Buffett). But I like to think most city governments will recognize the sharing economy for what it is, if only because local business people will make them understand it.

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