Evaluating Public Regulations on Private Properties in the Sharing Economy

Abstract

With the advancement of technology, particularly mobile apps, many consumers can attain services by sharing with other individuals instead of dealing with formal businesses. Sharing is not only a method for people to obtain cheaper service or goods as consumers, but it is also a way for them to make extra income on the side by providing goods or services at a cheap rate in exchange for avoiding industry regulations. There are many apps, including but not limited to Uber, which has avoided taxi-related regulations by dubbing their services as “ride-share” instead, DoorDash for food delivery, and Airbnb for housing-share. The rapid growth of these apps has slowly driven law-abiding businesses out of the market; many taxi services have folded. These apps also have competition; food delivery and ride-share services, for example, have many apps choices. However, Airbnb has become the de facto name in the online marketplace for temporary lodging, primarily through room share despite other similar services.

 

Keywords: sharing economy, rental properties, housing policy, occupancy tax, policy evaluation, Airbnb

 

 

Many cities have seen an increase of rental homes, and concerns about rising traffic and rents, mainly due to the ever-increasing popularity of online short-term rental platforms such as Airbnb (Nieuwland & van Melik, 2018). Wachsmuth and Weisler (2018) believe that Airbnb overlaps both residential rentals and hotel accommodation market. Furthermore, it introduced what they have called “a new potential revenue flow into housing markets which is systematic but geographically uneven, creating a new form of rent gap in culturally desirable and internationally recognizable neighborhoods” (p. 4).

The sharing-economy, especially for rental properties such as Airbnb, is just one example of alternative marketplaces that lower transaction costs compared to traditional organizations in the industry in exchange for reduced barriers associated with entering the market (Leoni & Parker, 2019). As a result, I believe it should be regulated because it can have negative external effects on their surrounding neighborhoods and destabilize industry logging and safety standards. To address this, I will outline the problems and propose solutions from scholarly research articles. Also, I will note the policy tools that will address the problem and provide a brief analysis of the evaluation of the solution.

Problem Identification

In many ways, Airbnb positively contributes to local communities, such as allowing travelers to live like a local and spend their money within areas that do not typically cater to tourism (Kaplan & Nadler, 2015). Economically, one study found that Airbnb guests tend to stay longer than hotel guests, spending less money on lodging, which in return allows them to spend more money on local businesses (Kaplan & Nadler, 2015).

Nevertheless, “Airbnb’s business model has been particularly controversial because it so clearly flouts existing housing and land-use regulations” (Wachsmuth & Weisler, 2018, p. 4), while hotels and vacation rental industries strive to keep up with the ever-changing building codes. A comprehensive study compares Airbnb listings in Texas against the quarterly revenue of Texan hotels; the finding is that for every 1% increase in Airbnb listings, there is a 0.05% decrease in hotel income (Gurran & Phibbs, 2017).

Furthermore, apart from a reduction in revenue from tourist taxes, the policymakers will also see long-term units removed. Airbnb threw off the affordable housing supply because it distorts the housing markets in two ways (Lee, 2016). First is conversion, resulting from commercial investors purchase residential properties to turn them into permanent rental accommodation (Nieuwland & van Melik, 2018). Put simply; long term residences are taken off the market and rented out to tourists. On the other hand, a second method is a form of converting a residential, single-family living space that was meant for long-term into short-term hotels or simply “hotelization,” as Lee explained (2016, p.230). For instance,  16,300 new housing units in New York were permitted for rent on Airbnb out of the total 23,200 units completed in 2016 (New York City Rent Guidelines Board, 2017). Nieuwland and van Melik claimed that “Airbnb activity has negated around half to three-quarters of a year’s worth of new housing supply in the city” (2018, p. 27).

In addition to the economic impact of affordable housing, ethical issues also become problematic (Kraft & Furlong, 2018). The act of renting a room in a house one owns is sometimes considered exempt from anti-discrimination laws (Biber, Light, Ruhl, & Salzman, 2017). Airbnb initially allowed hosts to refuse service as they see fit and, perhaps unsurprisingly, it eventually became an ethical issue for hosts to engage in practices that resemble a violation under federal housing discrimination laws (Biber, Light, Ruhl, & Salzman, 2017). Even though there has been no statistical research on that topic, there are qualitative studies done on racial, discriminatory complaints that have been shared online and became viral regarding private rentals.

All the political, social, and ethical problems that have been identified in this section further push forward my agenda that private rentals should be regulated, with attention paid to their enabler, Airbnb. I have developed a table of a logic model, where I create an objective, list the input/output, and hypothesize the outcome.

Table 1.

Policy Evaluation Logic Model

Goal: -Improve the compliance of the sharing economy.

-Increase the standards of private listings to industry requirements.

Objectives Inputs Outputs Outcomes
-Identify illegal Airbnb listings of private residence-based zoning regulations.

-Identify listings without proper life safety mechanism, such a smoke detector.

-Hold private hosts accountable for the local laws or ordinance in place.

 

-Participation from the city or the State to fund and employ enforcers to monitor listings online.

-Cooperation from Airbnb to implement policy changes on their interface.

-Engagement from local community members to report illegal listings in a particular zoning district.

-Obedience from the hosts to register the online licensing system to hosts on sharing platforms, install fire extinguishers, etc.

-Increase in participation of the online licensing system.

-Issue warnings and citations to violators.

-Removal of illegitimate listings.

-Increase the number of funds collected from logging tax or fines from the violators.

Short-term: With proper safety mechanisms enforced, the overall safety of the dwelling will increase, which also increases the life of the building.
Medium-term: Lodging tax collected will be an external revenue for the government, who can then use the fund to improve the enforcement program or other public programs.
Long-term: Promotion of equal business practices, which will help the hotel industries from being driven out of the market by private rental on the sharing platform

Note. From “Evaluating Regulations on Private Properties in the Sharing Economy” by Chen, S., 2020, Augusta University.

 

Description of the Economic and Social Environment

Airbnb had a humble start in San Francisco in 2008, created by graduate students who are aiming to offer a low-cost alternative to hotels (Vinogradova, Leickb, & Kivedal, 2020). Airbed and Breakfast (later became Airbnb) offer a travel method of “couch surfing with strangers” (Lee, 2016, p. 232). For both long- and short-term stays, Airbnb is a unique business between rental apartments/real estate and hotel/hostel industry (Interian, 2016). It is also notable that travelers on Airbnb pay a lower premium than they would in a hotel. They are likely to spend more on economic activities, which will stimulate job growth as Zhang and Chen (2019) have confirmed a positive effect between the proportion of employment and Airbnb supply. Nevertheless, Lee (2016) claims that the city’s affability crisis may easily overshadow the benefit. This platform presents a double-edged sword for municipalities (Vinogradova et al., 2020). Since its emergence, Airbnb had initially enjoyed a period of non-regulation.  Within time, however, the platform and practices drew the attention of policymakers.

In California, especially in Los Angeles, the public housing infrastructure poorly protects low-income homeowners and renters. Many residents spend up to 47% of their income on housing that has an average rent cost of nearly $1,800 in 2014 (Lee, 2016), and the cost continues to swell today. Airbnb, at that time, merely started as a way to supplement their cost of living. Nevertheless, under Airbnb’s facilitation, the residential and tourist markets have melded together on an unprecedented scale (Lee, 2016). This platform’s resemblance to those industries raises concerns on how to deal with taxation, regulations, and ethical issues.

Demonstrating just how exponentially and spontaneously Airbnb listings can grow, Lee’s study identified that six years after its inception in 2008, Airbnb hosted over 11,000 listings while there have only been 97,000 hotel rooms in Los Angles in the period of a hundred years of history (Lee, 2016). The disparity in growth from Airbnb is astronomical between the two.  A similar phenomenon is present in other places in the country. Zou (2019) discovered that Airbnb listings have surged around the end of 2016 in Washington, DC. Considering the events occurring around that time, which included the President’s inauguration and the Women’s March, Airbnb’s listings exceeded 9,000 in one city alone, and most of the listings at that time do not have reviews, indicating that they are fairly new (Zou, 2019). In the area closer to the White House, there were as many as 1,000 to 1,200 listings per square mile (Zou, 2019).

Empirically, previous research from Nieuwland and van Melik (2018), claimed that short-term rentals resulted in property increase or rent, especially in areas like downtown with heavy tourist traffic. Zou (2019) also later identified that the property price premium is transmitted to the rental housing market, which will cause long-term renters to pay more rent over time. According to Zou’s calculations from the statistical data during the surge of Airbnb listings in Washington, DC, in 2016,  it is evident that “Airbnb alone could account for an increase in single-family property price by 0.66% to 2.24%” (2019, p. 12). Zou (2019) determined that there is a 0.64% increase in property prices within a 200-foot buffer in Washington, DC. The study further suggests that unregulated grown in Airbnb created inequitable property price premium that could distress first-time home-buyers and negatively affected long-term renters if the price premium results in higher rent (Zou, 2019).

Externalities of Airbnb have a long-lasting and far-reaching impact on the social and economic environment, such as causing the permanent housing stock to dwindle in communities, especially in expensive cities for housing and tourism. As short-term housing on Airbnb generates more profit than long-term rentals, it would encourage landlords to do away long-term leases and create a housing problem for living residents (Interian, 2016). Policymakers will see gentrification, including a surge in displacement even in the homeless population. For example, the foreclosure crisis in Los Angeles, which took place around 2010, has pushed over 100,000 former homeowners into the rental market (Lee, 2016). Lee (2016) claimed that wealthier residents populated the city that resulted in gentrifying the low-income areas predominately occupied by immigrants, such as Chinatown. In the study by Zhang and Chen (2019), they concluded that Airbnb allocation is predominately in the central areas of cities, such as Los Angeles or New York.

As the popularity of the listings grows, many issues within cities such as unruly behavior from the travelers and noise ordinance claims increase. Many neighborhood councils contend that Airbnb is enabling hosts to violate zoning codes, and allege rowdy travelers undermine public safety (Lee, 2016). Also, travelers take up resources that live-in residents pay for, such as trash service and parking spaces. Hotels, a much-regulated industry, pay sales tax and occupancy tax to its city in order to accommodate their travelers. Moreover, hotels are kept up with safety, health regulations, occupancy taxes, zoning laws, etc., all the while taking a hit on the economic losses due to emerging competition from Airbnb and furloughed workers (Lee, 2016).

Besides the economic impact, discrimination brings a demonstrable social impact, which can contribute to violence, displacement, and inequity. Farmaki and Kladou (2020) also explained that there are underlying increases in criminal activity and mental health illnesses that extend from discrimination. They believe that a qualitative approach, unlike the statistical, quantitative analysis, is more appropriate for a peer-to-peer business model in the sharing economy. They believe, as do I, that this approach will allow firsthand experience and depict a clear picture of the environment in the world of Airbnb (Farmaki and Kladou, 2020).

In the qualitative study done by researchers, Farmaki and Kladou (2017) observed in a series of interviews that hosts have biases starting from just the name of any travelers who sent inquiries to their listings. A name could give a hint on the traveler’s nationality. The host could create more associations with the person’s religion, for example, which all together could become more of a reason for the renter to be unethically treated. On the other hand, travelers might unwittingly cause a problem for the hosts due to being different in the community, from something as simple as practicing energy savings to failures to conform in ethnic and cultural norms (Farmaki and Kladou, 2020).

In addition, Farmaki and Kladou (2017) found that gender issues, particularly due to co-habitation, can be controversial in its perspective. While female hosts consider a safety reason only to accept female travelers’ bookings, Airbnb (2018) considers that discrimination.  It is, hence, another reason why Airbnb is promoting resources online, helpful tips, training videos, and other resources to inform and educate both hosts and guests. Through sharing experiences on Airbnb, many hosts also had an opportunity to interact with people that are different from them and break preconceived prejudices. All in all, it could be a positive mutual sharing experience.

Policy Analysis

I attest that these bursts of the business in sharing economy are disruptive from a legal perspective. The sharing platform economy is evidently destabilizing the industries in which it is gaining traction (Biber, Light, Ruhl, & Salzman, 2017). How policymakers ought to respond depends fundamentally on the values they want their regulations to promote, including efficiency, innovation, and protection of the public interest (Biber, Light, Ruhl, & Salzman, 2017).

A complicated perspective is that Airbnb itself is not breaking the law. Still, according to Gurran and Phibbs in 2017, many Airbnb hosts are violating public zoning regulations and private covenant and lease agreements. Local planners need to evaluate the potential impact of online house-sharing on the potential housing market as well as the neighborhood impacts, including but not limited to noise, congestion, and safety. They need to revisit zoning and residential development controls accordingly (Gurran & Phibbs, 2017). Gurran and Phibbs recommended that “All planning efforts should be supported by a strong policy framework for monitoring the impact of Airbnb rentals on the availability and cost of lower-cost permanent rental accommodations, and ongoing research and analysis to understand implications for local neighborhoods and housing markets fully.” (2017, p. 91).

Airbnb, a leader in the peer-to-peer sharing economy, should be held accountable for unethical practices by its hosts, and the negative externalities that it has on other law-abiding industries (Interian, 2016). The sharing economy is a very new business practice and very dynamic; it is hard for policymakers to create laws and regulations that will fit the business model and update them as it changes. So, how are Airbnb and its hosts classified? Understanding that relationship could help to clarify Airbnb’s position within public policy. Indeed, it is not unusual to equate Airbnb hosts with hotels; however, Airbnb is not a hotel because hosts’ private property is not considered a “public house” (Interian, 2016). As a result, laws for hotels do not apply explicitly to Airbnb due to the fundamental differences (Interian, 2016).

Many could view hosts as independent contractors; however, there is no official recognition of that relationship in the United States, given the fact that Airbnb places very few requirements and restrictions on the hosts for them to be contractors. Similar sharing-service, according to Interian (2016), Uber failed to prove that its drivers are independent contractors in many legal battles, one notably in Massecuites. Uber is banned in many cities outright, while there is no complete ban of Airbnb anywhere in the U.S. (Interian, 2016).

A joint venture is also another way to look at Airbnb and its hosts. The requirements to establish a joint venture are as follows: 1) implied agreement, 2) common purpose, 3) shared profits, and 4) equal control of the project (Interian, 2016). Airbnb argues that not all elements as hosts’ properties are private. In the end, the United States has not been able to define a legal term for a business relationship between Airbnb and its hosts.

Furthermore, both entities, the host and the Airbnb platform, receive direct compensation from the transaction paid by the traveler to providing the accommodation; thus, it is assumed that both are accountable care to the travelers (Interian, 2016). Nevertheless, the Communications Decency Act in 1996 helps clarify Airbnb’s liability for the content posted by its hosts on the website. The publisher, Airbnb in this case, is liable as a speaker since it is either partially or fully responsible for creating the content (Interian, 2016).

Regulation Examples Across Different U.S. Cities

Airbnb-based tourism threatens both traditional hospitality industries and the neighboring real estate and rental market in the community (Vinogradova et al., 2020). In this case, a marketing failure should prompt policymakers to take action to regulate private businesses. The U.S. only has focused on mandating insurance coverage and collecting tourist taxes, yet much still needs to be done to remediate the permanent housing losses (Interian, 2016). A simple tax on Airbnb alone will not likely be enough to de-incentivize hotelization or to fund other social and economic issues such as displacement (Lee, 2016).

From a planning perspective, functional zoning ordinances and effective zoning board play critical roles in regulating Airbnb (Zou, 2019). Studies have shown that revising zoning ordinances can confine and balance Airbnb listings expansion. This can be accomplished by issuing and limiting licenses.  One of the ways that Denver, CO, had implemented to regulate Airbnb by establishing an entirely online licensing system in which hosts self-certify. It was a challenge to communicate it to hosts and to persuade them to comply with the new regulations (Nieuwland & van Melik, 2018). I feel that online registration is the most logical option for an industry that also happens completely online; enforcement officers look at Airbnb listings on the website, which is required to indicate a license number.

For example, through the online licensing system, Denver is treating individual Airbnb hosts as responsible businesses, rather than treating the platform itself as a whole. Signing up on Airbnb to host without a license is a violation. First-time violators get a notification, additional violations due to non-compliance can lead to steep fines up to $1,000 a day, or a complete withdrawal of the license if non-compliance continues after the notification (Nieuwland & van Melik, 2018).

In 2015, Los Angeles mayor announced that the city would levy a 14% occupancy tax on travelers who book on Airbnb, which is estimated to generate about $5 million annual revenue (Lee, 2016). The revenue will then go towards the Affordable Housing Trust fund, which was only $19 million. Money collected from this tax will help fund the construction of affordable units. Taxation deducts the uneven concentration of Airbnb listings in the study found by Vinogradova (et al., 2020). In addition, Los Angeles has also approved a limitation stay duration for travelers; any extended stay will require special approval (Vinogradova et al., 2020). In the study, Vinogradova (et al., 2020) conducted a simulation that noted that a 20-day duration affects the volatility of the market, while a 15-day limit creates a deeper drop in listing counts and should stabilize the long-term rental market. However, as a counterpoint, for example, it is illegal to rent out an entire house or condo for less than 30 days in New York (Wachsmuth & Weisler, 2018).

Airbnb’s website includes local regulations and laws in the jurisdictions that apply to listings depending on their location (Airbnb, 2015). Under its general regulations, Airbnb (2015) encourages hosts to look up any local taxes or business license requirements that may apply when creating a listing; the platform took a step further and created local regulation pages for dozens of popular cities in the United States. These concessions all serve to help the renter ahead of time before issues arise. However, Airbnb (2015) also made a clear disclaimer that does not serve as a formal tax or legal adviser.

Additionally, the ordinance requires all hosts to “have smoke and carbon monoxide detectors and a fire extinguisher to ensure guests’ safety” (Nieuwland & van Melik, 2018, p. 10). To mitigate nuisances in the neighborhood, it also demands hosts to display local ordinances on parking, noise restrictions, and trash collection. Lastly, hosts are “required to pay a 10.75% lodging tax” (Nieuwland & van Melik, 2018, p. 10), which is poised to create a fair, even traditional lodging industry standard and generating income for the municipality.

The social issues, on the other hand, also need to be addressed. Americans have a long history of discrimination and reforms through the civil rights movement. The Fair Housing Act was enacted in 1968 to provide fair housing throughout the United States, which means that it is illegal to refuse any person based on race, religion, sex, nationality, and disability. This act has had a positive impact on minorities who have been historically marginalized. Airbnb itself boosted anti-discrimination policy after evoking criticism from several pieces of evidence and persistent stories on travelers who were poorly treated by their host, especially due to racial issues (Ert, & Fleischer, 2019). Before creating an account, Airbnb (2018) requires its users to agree to their nondiscrimination policy.

The platform now allows users to use a digitally generated avatar rather than an actual photo, according to Farmaki and Kladou, in 2020. The platform took measures to reduce the prominence of guest photos in the booking process with objective information (Ert, & Fleischer, 2019). It also introduced an instant booking feature (Airbnb, 2016), that in theory, reduces the chances of the hosts to screen their potential travelers. The platform also strongly pressure hosts to enable a feature on their rental listing for higher ranking host status, known as “Super Host,” on its website (Airbnb, 2016). This status symbolizes an objective trust indicator for hosts to present to their travelers, which has a positive effect on their visibility (Ert, & Fleischer, 2019). Without instant booking, hosts are more likely to be penalized for any for delayed response time. Not only will it affect their “Super Host” status, but it will also be documented and presented on their profile for future, potential travelers to see and make their conclusions before booking (Airbnb, 2016).

To create trust, Airbnb has established well-monitored rankings, ratings, and reviews as instruments to build a user’s digital reputation and serve as a preview before connecting renters and rentees (Leoni & Parker, 2019). Ultimately, Airbnb, in addition to serving as a facilitator, is also the mediator that holds the authority over suspending accounts (Leoni & Parker, 2019). While Airbnb collects an 8 to 18% commission fees from both hosts and travelers (Wachsmuth, & Weisler, 2018), it places closer evaluations on hosts. These implementations to the system would uphold their ability to list rather than the traveler’s ability to book.

The Public Policy Impact

To see the economic impact in Los Angeles, Lee (2016) expressed concerns that Airbnb rental removes 7,316 units year-round in the city, given the city’s low vacancy rate. Even if Airbnb listings stop expanding, it could theatrically take up to 457 years to fund the full replacement with the rate of the revenue earned from occupancy tax. The policy has made a minimal impact if it has made any at all. The rate units are lost to a short-term sharing platform is much faster than the rate cities can build a long-term housing replacement in its place. According to the California Department of Housing and Community Development (2014), a unit with an average of $132 per night for 219 days a year would generate almost $29,000 for the hosts but around $4,000 for tax revenue. If one public affordable long-term unit in Los Angeles is $315,000, it will take over 80-years alone on occupancy tax funding. (CDHCD, 2014).

While larger cities, Los Angeles, Denver, New York, have begun regulating Airbnb listings, smaller cities may not see a similar impact. Augusta, GA, does not require hosts to have a license. Travelers pays 8% occupancy Taxes and Airbnb (2019) remits these taxes on the behalf of the host. I have been a host of Airbnb for a little while, and I have not seen any municipal regulations on the platform. The city of Augusta has been known for its short-term rental market for the world’s biggest golf tournament, the Masters Tournament, for many decades. It may be possible that regulations would be introduced down the road; however, I foresee that it would overhaul the whole Masters rental economy as well.

Regarding social impact, since Airbnb created and implemented guidelines in 2018 to address discrimination issues, the platform still relies on both hosts and travelers to fulfill them and report any incompliance (Farmaki & Kladou, 2020). For the Airbnb’s policy regarding anti-discrimination, there are still ways for hosts to decline reservation requests without affecting their rating. While “Instant Booking” is highly encouraged, it is only optional, and hosts can continue to screen their travelers by rejecting an inquiry or canceling a booked reservation. Understandably, many hosts wanted to retain their rights to select travelers for their private properties (Farmaki & Kladou, 2018). In Ert & Fleischer’s study (2019), the exclusion of hosts’ profile photos from the main search screen has seen an even increase in booking inquiries across the platform, which increased objectivity of overcoming discrimination. Moreover, the “Super Host” status forms a uniform trust in the platform.

Much pressure is placed solely on the host and not the travelers, as they are just as capable as having bias and unruly behaviors (Farmaki & Kladou, 2018). Furthermore, Airbnb’s policy on review and cancelations rating places an unfair, negatively impacting the hosts rather than the travelers. For example, hosts are much more likely to face the threat of a listing removal for a negative review. As a result of the Goodhart’s law, Airbnb listings showcase overwhelmingly positive reviews and thus unwittingly introduced statistical bias as Airbnb strives for information symmetry (Zou, 2019). The reviews are effectively influenced, likely due to the constant pressure to rate positively imposed by the Airbnb onto the hosts, and then from the hosts to the travelers.

Evaluative Criteria

Policy evaluation assesses whether policies and programs are working well, supported by evidence that is achieving its stated goals and objectives. It also involves political judgments regarding the program’s worth and making decisions based on those judgments (Kraft & Furlong, 2018). It seems that the measure of regulation Airbnb is currently functioning at a trial-and-error stage, rather than a statistically proven effective political structure (Vinogradova et al., 2020).

To evaluate Denver’s policies, I need to determine the possible flaws of online enforcement. Airbnb protects its hosts by not sharing the exact address until payment is accepted. Nieuwland and van Melik (2018) noted that hosts avoided being detected by enforcement officers by simply taking down listings during office hours and by putting them back up again in the evening after work hours when web traffic in general increases. On top of that, the sharing economy and the virtual market is very dynamic, with hosts starting and quitting each month, making it hard to keep up with listings(Nieuwland & van Melik, 2018).

To evaluate the policy in Los Angeles, I will revisit the 14% tax on Airbnb facilitated rentals, as stated by Lee (2016). Arguably, Airbnb listings are listed intermittently, and it would take “457 years for occupancy taxes to fund the full replacement of the housing units that Airbnb removes” (p. 245). In the study from Vinogradova (2020), the experiment shows that imposing taxes will result in the removal of unstable listings from the market.

If Airbnb listings need to take full responsibility for covering the cost of the units that it removes, it would require a higher tax rate. Lee (2016) suggested that 21.8% will fund around $25,200 in taxes over four years. The occupancy tax still does not address the overall market increase in rent and continued displacement in neighborhoods. Depending on where the new units are built, it could still be unclear whether the long-term residents displaced by the short-term platforms will benefit from the new units (Lee, 2016).

According to Kraft and Furlong (2018), out of the many reasons governments engage in policy and program evaluation, costs may be amongst the most important. With the policies implemented, the government should have revenue through licensing registration, or the collection of lodging tax collection and violation fines. In return, this revenue stream will continue to fund the enforcement officers and the program. The effect of the policy implemented should decrease in the number of listings after the implementation of the regulations. The strengthening in oversight should deter bad actors, potential scammers, or hosting locations that do not meet the zoning requirements to list on Airbnb. In December 2016, the city of Denver started with 4103 listings right after the ordinance was implemented, and the number dropped to 3768 after six months; it eventually plateaued around 3540 (Nieuwland & van Melik, 2018).

All the policies dealing with the sharing economy in Denver contribute to alleviating negative impacts to the surrounding neighborhoods. There is much more work to be done to regulate the fast-growing sharing economy. The dynamic technological innovation means that the problems of emerging business models will increasingly clash with traditional regulations. Designing regulatory structures that are not only resilient to protect society from harm, but also flexible to facilitate the development of new business models, will remain a challenge for policymakers (Biber, Light, Ruhl, & Salzman, 2017).

Applying Evaluative Criteria to Alternatives

When judging the merit or value of government policies, policymakers should consider multiple options and propose policy alternatives. There are four criteria, in particular, that Kraft and Furlong (2018) suggest: effectiveness, efficiency, equity, and political feasibility.

In the case of Los Angeles, while the increase in occupancy tax could help, there are ways to increase effectiveness. The mayor should also address how to handle illegal listings that violate zoning regulations, unauthorized residential conversions, or discrimination in practice (Lee, 2019). A penalty or fine could be established in Los Angeles, similar to Denver. Secondly, since hosts can lease their property through Airbnb at a lower price point than hotels and thus earn a premium (Lee, 2016), they should be strictly enforced to file income tax on Airbnb transactions. It should be a universal requirement for every city in the United States, which would be a way to help increase revenue for the States as well. The city could also use the fund to promote economic diversity by spending it on municipal housing voucher programs that will spur economic integration.

For political feasibility, policymakers who are seeking to regulate Airbnb must make both economic and value-driven decisions in order to balance Airbnb’s cost and benefit (Lee, 2016). Especially for issues of displacement, Los Angeles should blanket ban landlords who evict or displace residents without fault to become hosts for short-term guests (Lee, 2016). Also, the city should ban renters and lessees who do not own the property to host on Airbnb. The only requirement is written approval from the landlord (Airbnb 2015), which is easily forgeable and hard to authenticate. I deduce that this could also cause a problem with the accountability of property owners. In some ways, it could obscure property damage or enable a renter’s ability to make income from Airbnb with no risk inherent from owning property.

Vinogradova (et al., 2020) suggest that while modern taxation may have a stabilizing effect on the sharing market. To promote equity, policymakers should consider time-based resections that could potentially contribute to a more even distribution of Airbnb listings across urban space. It is suggested that the number of licenses per year should be limited to avoid rapid hotelization (Lee, 2016). Alternatively, the city of Los Angeles could continue to place targeted restrictions on them and focus on enforcement (Lee, 2016). It means that the city should crack down on large-scale operators who manage multiple rooms across the city.

Conclusions and Recommendations

In the world today, the internet has been ever-changing and consumes a growing portion of our daily lives. Innovations of the internet brought creativity to businesses while seemingly making our lives convenient on a surface level. If not properly regulated, the internet could bring a permanent negative externality with an enormous impact. In return, the issues that we will have to deal with down the road will not be worth the convenience. The benefits that sharing and peer-to-peer business brings should not validate the deterioration of the current system.

Furthermore, while the current system already complies with a law that was in place, it should not become outdated. No one law fits the needs of all cities; thus, it is up to policymakers to understand the needs of their perspective city and restore the balance in the housing market. When examining policy alternatives, policymakers must make use of policy analysis, according to Kraft and Furlong (2018). As Interian suggested, “in the absence of legislative adaption, the present interpretation of §230 should reflect the internet’s rapid development and stop protecting content that empathetically violates local federal law” (2016, p.160).

As a company, Airbnb has begun to understand its economic and social impact and implemented a policy on its website. The government needs to focus on measuring the success of their policies and hold Airbnb accountable for any flaws. This will also require Airbnb to continue to update its effort to enforce compliance.

Undoubtedly, Airbnb helps struggling residents to make extra income by sharing their rooms (Kaplan & Nadler, 2015), and it also boosts affordable traveling. Nevertheless, there is a silver lining to foster collaboration between public policy and a private entity, such as Airbnb and its hosts. If appropriately regulated, Airbnb could be a smart path to building private/public partnership that is mutually beneficial. Although the effects of regulation and its reinforcement still need more testing and evaluation, in time, policymakers will find the best way to resolve the negative externalities while preserving the positive externalities that are brought by Airbnb, a peer-to-peer business model in the sharing economy.

References

Airbnb. (2015). Responsible Hosting [Policy Statement]. Retrieved from https://www.airbnb.com/help/article/1376/responsible-hosting-in-the-united-states

Airbnb. (2016). What is Instant Book? [Policy Statement]. Retrieved from https://www.airbnb.com/help/article/523/what-is-instant-book

Airbnb. (2018). Nondiscrimination Policy: Our Commitment to Inclusion and Respect [Policy Statement]. Retrieved from https://www.airbnb.com/help/article/1405/airbnbs-nondiscrimination-policy-our-commitment-to-inclusion-and-respect

Airbnb. (2019). In what areas is occupancy tax collection and remittance by Airbnb available? [Policy Statement]. Retrieved from https://www.airbnb.com/help/article/2509/in-what-areas-is-occupancy-tax-collection-and-remittance-by-airbnb-available

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