October 18, 2014
We all know how hard is to get rich these days, so it’s understandable that Arthur Brooks wants to give the young men and women making fortunes in the “sharing economy” a hand. (He even dubs it the “helping industry,” which apparently is to distinguish it from sectors like health care and education.) Anyhow, the gist of his piece is that companies like Airbnb are actually about helping people — allowing people with unused rooms to make a bit of extra money, while people from out of town get to find a room at a lower cost than a traditional hotel. He is upset that governments around the country are trying to apply the same regulations to his friends in the helping industry as they do their competition in the hotel industry, taxi industry, or other sectors where the helpers compete.
First, we all understand that the Airbnb billionaires just want to help people (Brooks assures us that getting rich was beside the point), but sometimes the government does get in the way. Let’s take a simple example that even conservative types might understand. The Hepatitis C drug Sovaldi is being sold in the United States for $84,000 for a 3-month course of treatment. This high price is due to a government granted patent monopoly. Indian producers can profitably sell generic Sovaldi for $1,000 a treatment.
Suppose I set up a helping industry company that bought up generic Sovaldi in large quantities in India and sold it to patients in the United States for $10,000 a treatment. Brooks would undoubtedly defend Baker’s Cheap Drugs Inc., since we are just allowing people to get needed health care at an affordable price. And, we are creating jobs in India for people working in the drug industry. Why would big bad government interfere?
Okay, we all know the story about needing patents to provide an incentive for research (which happens not to be true). But the key point is that there are all sorts of situations in which the government doesn’t just let “helpers” go about their business because third parties get hurt in important ways.
There are many such issues with Airbnb. The immediate reason that Airbnb has been in the news is that New York Attorney General Eric Schneiderman just did an analysis of the data from New York City and found that 37 percent of the revenue went to people who had more than two units listed on Airbnb. This is not money going to people renting out a spare room, but rather money going to commercial landlords who are looking for a way to evade New York’s rent control laws.
There is a reasonable argument as to whether the city’s rent control laws are good housing policy, but there is not a reasonable argument that young billionaires get to profit by evading them. Presumably the helpers at Airbnb are smart boys and girls. If they think the rent control laws in NYC are bad, they should be able to use their money to pitch their case to the people of New York and get them to support better housing policy. Until then, they get to obey the law.
There are many other issues with Airbnb that also deserve attention. People in apartment buildings are not paying rent to live in hotels. If their neighbors rent out units, then they can expect a lot more people coming and going at all hours of the day and night. The same would be true for condo buildings. In time, apartment leases and condo association rules will probably ban the use of Airbnb and comparable services, but until then it is understandable that many people would not be pleased. Of course when such rules are in place, the helpers at Airbnb will have to be held legally responsible for violations.
Then there are issues about the safety of units. Hotels have to undergo inspections for fire safety. They also are responsible for ensuring that their guests are safe when they stay there, meaning that they will not be attacked by hotel staff and there will be reasonable precautions against other crime. Airbnb can’t be expected to inspect every unit, but they can be expected to get insurance to cover harm done to people while staying in one of their units.
There is also the issue about taxes. This is a no-brainer. There is no reason to exempt people from the taxes that apply to traditional hotel units because they rent out the rooms on Airbnb. The great thing about Airbnb’s platform is that tax collection should be very easy since everything is all computerized. We know how many rooms are rented for how many nights and at what price. Airbnb should have no problem making sure that the taxes are paid to city or state. (Are the taxes too high? Perhaps, but then change the law.)
Finally, there are also issues like handicap accessibility and protection against discrimination that the government has sought to ensure with the traditional hotel industry. It doesn’t make sense to apply these rules to the traditional industry and then say that because Airbnb is on-line they don’t matter, especially since Airbnb could put the traditional industry out of business. If Airbnb or similar services are going to rent out a substantial numbers of rooms, then we need to have a parallel regulatory structure to ensure that wheelchair accessible rooms are available and that people will not be discriminated against based on their race.
In short, Brooks is right. The Airbnb folks may be all about helping people. They just might need a little “help” in order to make sure that they succeed in this effort.
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