Is the clock ticking for the sharing economy?

The clock could be ticking for businesses like Airbnb, Wimdu, 9Flats and HouseTrip as new regulations gradually being introduced in some cities around the world begin to threaten their core business – but the problem is bigger than that.

While stories like Airbnb’s future in New York being questioned as a result of short-stay regulations have made headline news in the past, there’s a growing backlash against the sharing economy that could spread to other industries.

In New York, Airbnb’s major problem is a rule that clearly defines hotels and apartments (stays of 30 days or longer) as different things. Hotels have to comply with fire regulations and other safety rules while apartments do not.  It’s not restricted to the US either, Airbnb has attracted its fair amount of attention in Amsterdam for renters letting out their properties without the appropriate permit.

A domino effect

The problems and scrutiny is not new and not entirely unexpected – new models of bringing a service to market have disrupted entire industries, and the incumbents in those markets, so a certain amount of resistance is unsurprising. But what started in New York two years ago is quickly becoming a domino effect.

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With it, the pressure on companies like Airbnb, Wimdu, 9Flats and HouseTrip is intensifying; new laws that effectively cut off large swathes of their business, or worse, render them completely banned.

On Thursday, one of these new laws passed the first rung of approval in Berlin. It will specifically limit the number of apartments that will be available for holiday rental within the city. Why? Because it said it wants to secure apartments for Berlin residents; the fear is that an influx in the number of people renting out their apartments in the short-term will drive up rental and housing prices in the long-term. Another clause in the law would mean that apartments could not be left empty at all, too.

The proposal is next expected to go to the senate for approval, before being passed into law officially.

Following the expected introduction, the city’s roughly 9,000 holiday rental properties will be reduced to around 3,300. Clearly the impact on these businesses is significant. Bear those figures in mind, 3,300 apartments in a city that has 1.9 million of them, that’s only a fraction of a percent of the total apartments available, quite how that could affect long-term rents in the city is a curious question.

The decision to crack down in this way is even more curious when you consider how Berlin has grown into a booming and recognisable tech hub, but Ryan Levitt, a spokesperson for HouseTrip told TNW that locals’ patience for outsiders was wearing thin:

They believe that there are too may people for too few apartments. The reality is the success of the tech industry in Berlin is bringing in 40,000 new people to move to the city each year, combined with the success of the German economy and the repositioning of Berlin as the capital of Europe. You cannot put investment into a city, establish a new capital of Europe, drive a new tech industry that brings in lots of people and then turn around and say ‘we don’t want you foreigners’… The tech hub is now a bit of a bubble.

It’s a more complex and delicate situation though. The truth is that house prices are rocketing in Berlin, and local residents that don’t have a foothold in any of the thriving industries are paying the price. And as is the case in other cities, politics can play a big part in the level of tolerance a city has. If it’s election year and your local residents don’t like the influx of new people, there’s a good chance that concern will be addressed, even if it doesn’t seem to make sense or really address the problem.

Berlin’s drivers have been the government, tourism and now tech. So yes, it is getting more expensive for the everyday Berliner who doesn’t have a tech education, who doesn’t work in the government, who is just trying to get by – yes, they see on the surface that the rents are going soaringly up but they’re not reaping the benefits of this tech investment, of this government investment.

What they see is [foreign] people coming in and buying apartments, and then selling them a year later because the price of residences has gone up [so much] … It’s like London was six years ago.

As was seen in New York though, where there is demand, there will still always be supply. So prohibitive regulation will simply drive the economy underground and into murkier areas; not a helpful situation for either party, as Roman Bach, a spokesperson for 9flats noted in a statement:

Considering how important tourism is for Berlin, we consider this new law incredibly short-sighted as it is trying to regulate a booming market that is driving a lot of Berlin’s new wealth. Driving this economy underground and into the shadowy areas of the legal system is not productive and takes a potentially great source of tax revenue away from city coffers.

A Parisian thing

The focus on regulation of holiday apartment rentals in Europe may have grown out of scrutiny in New York, but it landed first in Europe in Paris. One of the most visited cities in the world.

On the surface of things, the freshly amended proposals to the short-term rental law in Paris look more open than in say, New York, but it is in fact equally unworkable for anyone wanting to just rent out there apartment now and again. Like Berlin, the clarifications of the existing law have passed the first layer of government – with the next step set to be the debate of any amendments in December.

Key to the tweaked regulations is the necessity for a permit, if you get one, holiday rentals are legal. Simple! Not so much. If you get your permit, your property is declared a commercial property instead of a residential one but in order to be allowed to do this, you have to find a commercial property within the same area of the city that can be turned from a commercial property into a residential one. So, while you’re free to rent out an apartment if you get a permit, actually getting one could be a bit trickier.

The concern driving the clarification of existing regulations is the same as stated in Berlin: there are too many rental properties on the market, meaning higher rents and too few apartments for locals. While this position is arguably more relevant in Paris – it has far fewer overall apartments than Berlin, so percentage-wise the number of holiday apartments is higher – it’s also arguable whether the proposed measures will do anything to appease the disgruntled locals and manage to return rental rates to a lower level. Housing is always a hot topic in an election year.

To sprinkle a little irony on the situation, the city of Paris also has aspirations of catching up on the tech game with the 1000 Startups @ La Halle Freyssinet project providing the largest digital incubator in the world.

It’s not just Paris, or Berlin either, Spain too is now taking a long, hard look at how it deals with holiday rentals.

Until May this year, there was no national law covering short-term holiday rentals. Instead, each region decided what was appropriate. By May 2014, a working group from four regions of Spain will have to come up with the new national law, but currently, HouseTrip’s Levitt tells TNW, the four regions are not talking to each other due to a difference in opinion on how it should be approached. On one side you have advocates for a simple registration and taxation system, and on the other you have representatives from areas that traditionally draw a lot of their income from hotels, like the Canary Islands – which already has complex holiday home rules. Make of that what you will.

Levitt told us that there are also now rumblings coming from places like Vancouver, Quebec and Malta about whether they need to look into regulation of services such as these.

A better way

All is perhaps not lost though, Amsterdam, as we mentioned right at the start, currently operates a permit-based system. However, it seems that the city has recognised that it’s an outdated system that’s not appropriate if it wants to make the most of the new opportunities, Levitt explained:

Amsterdam realised that the power of social travel is unstoppable and past the point of no return. They know people want this travel experience. So they decided to appoint a social travel specialist [who is] now sitting down with all of the platforms to find ways to make social travel work effectively for their city, that’s from nuisance complaints to taxation and finance to safety and security. Their view is ‘we can’t ban this’ and that it’s stupid to.

If you create laws that make it workable for the city and platform and the tourists and the locals, everyonecan benefit. The city can benefit from taxation. You can benefit because you’ll have a standardized [system] … If there is a problem with an apartment, or a noise complaint, it can be dealt with easily, as opposed to hiding it underground.

Currently though, right now you still need a permit in Amsterdam while they work through this process of adjustment to the new market models.

A bigger threat

Most of the attention to this point has focused on housing and short-term holiday rentals, but the threat to the wider sharing economy is writ large. You only have to look at the amount of resistance  other services like the taxi-cum-ride-sharing service Uber has faced in some of the cities in which it operates to see that we’re likely to see the growth of new and more specific regulations to govern all sorts of different services. Levitt agrees:

This is just the first step. Housing is first, the next will be cars and car rentals and it’s just going to go on and on. It all plays into the hands of companies that want you to keep buying more and more and more stuff. What it always boils down to is money, what these governments want is cash. We’ve always said we’re willing to sit down to find answers and solutions, but because those solutions would probably require some time and some sort of investment from the city they just don’t want to deal with it.

With big business, local politics and all sorts of other pressures bearing down, companies operating within the sharing economy right now face an uphill challenge, but as has already been demonstrated by Amsterdam’s approach to holiday rentals, by consulting with all parties involved these services can bring benefits for government, travellers, and locals alike.

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