Airbnb v NYS: Can innovation coexist with regulation?

Rules are meant to be broken.  It’s not a bad aphorism inasmuch as it contains the spirit of innovation that leads to things like democratic republics in favor of monarchies, cures for horrendous diseases, brilliant works of art, and…yes…iPods.  Of course, as the better English teachers used to say about grammar, it’s okay and even necessary to the task of creative writing to break the rules as long as you know you’re breaking them.  In another context, regarding the rules pertaining to many of the social systems we erect, I would argue that it’s okay to break certain rules as long as we don’t forget why we wrote them in the first place.  There’s no question that government regulation, for instance, can be inefficient, unreasonable, costly, and even corrupt; and for a state government that has exhibited all of these vices many times since the nation was new, one need look no further than Albany, NY.  Nevertheless, as state Attorney General Eric Shneiderman squares off this week with chief executive Brian Chesky of Airbnb, the question of whether or not regulation plays a role in the so-called “sharing economy” is as much a cultural matter as it is a practical one.

Airbnb is the biggest online facilitator of short-term rentals.  Through services like these,  home-owners with anything from a room to a whole house available can connect with renters looking for short-term alternatives to hotels and traditional B&Bs. Airbnb collects modest service fees for hosting the connections and facilitating transactions, and today the company is worth an estimated $10 billion.  Of course, in New York State, as you might expect, a very large portion of rental properties are offered and sought in New York City, and there happens to be a law in the city against renting a whole apartment for less than one month.  This is to prevent landlords from operating unlicensed hotels.  According to this story by David Streitfeld in The New York Times, AG Schneiderman is claiming that 60 percent of Airbnb rentals in the state are illegal due to the large number of city offerings that are breaking the law.  Chesky is fighting back with a familiar refrain we hear in so many contexts these days — that current regulation doesn’t apply to his company’s stable of hosts he calls “micro-entrepreneurs.”  And, indeed, Airbnb can be a very lucrative, even home-saving opportunity for people seeking new ways to survive the pressures of the current economy.

I personally think Airbnb and businesses like it are pretty cool, and we should proceed with caution when it comes to regulating new sources of income for individuals in an economy that continues to pummel the middle class from all sides.  I stayed in a woman’s home on Long Island a couple years ago; and it was clear that the income she earned by renting out her kid’s room from time to time factored considerably into making ends meet for her family. On the other hand, if an unregulated, data-driven system enables the multi-property, commercial owner in a place like New York City to circumvent laws originally designed to protect consumers, that doesn’t ultimately help Mrs. Room-to-Rent or anyone else in the long run. It seems to me that if a system like Airbnb exacerbates the already lopsided real-estate market in that city, the family with one room to rent is only going to bear more financial pressure over time in macro-economic terms until their micro-entrepreneurism won’t help.

And according to the Times article, the AG’s office claims that nearly one third of the city rental offerings at the time it began its investigation were owned by just 12 percent of the hosts on Airbnb.  Even as the fight was brewing in Albany, Airbnb was scrubbing certain landlords from its site who were controlling an estimated 2,000 rooms in the city.

David Streitfeld rightly invokes the Silicon Valley ethos ingrained in its VC-fueled, fail-fast, start-up culture that “It’s better to ask forgiveness than permission.” This mantra is often repeated with regard to copyright infringements, privacy invasions, and violations of any number of statutes; and what it really translates to mean is get rich faster than you can be sued or indicted, and then you can negotiate or even pay a settlement after the fact.   In fact, the Times article quotes a Mr. Kevin Laws of AngelList thus:  “the approach almost all start-ups take is to see if they can be successful fast enough to they can have enough money to work with regulators.”   It’s an effective strategy, and there is something undeniably American spirit about it, too; but it seems to me we should adapt regulations to accommodate the changing market without necessarily abandoning their initial intent.  The current cultural trend that seems to want to tear down all systems originally designed to serve the public has a tendency to result  in the kind of market that existed at the turn of the last century when people were  literally ground under the wheels of innovation.

I think this tension between New York State and Airbnb makes an interesting test case — one that ought to be a relatively solvable — exemplary of the larger challenge as to how and when to regulate in the digital age.  Can we balance legitimate innovation that really does meet a viable market demand and creates opportunities for people while also maintain rational grounds for public oversight where necessary?  While temptations abound to forego the very notion of traditional regulation in favor of some sort of algorithmically optimized democracy, I suspect this isn’t a choice we’d make were we able consciously to consider it.  As such, cases like this one are intriguing in that they force us to ask some of the right questions.

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