6 The Shifting Landscape of Regulation and Consumer Protection
Societies that get “stuck” embody belief sy stems and institutions that fail to confront and solve new problems of societal complexity. —Douglass C. North, from his Nobel Prize Lecture, December 9, 1993 When Airbnb’s cofounders were developing their peer-to-peer accommodation platform, hotel regulations were the least of their worries; Chesky, Gebbia, and Blecharczy k were plugging holes in their air mattresses, making breakfast for strangers, writing code, and stuffing and selling boxes of “Obama O’s” and “Cap’n McCain’s” cereal in order to raise money. But as Airbnb’s growth accelerated—2013 saw them more than double their host numbers—the office of the New York state attorney general Eric T. Schneiderman, fresh on the heels of a successful effort to purge online platforms like Yelp of their fake reviews, turned its attention to providers on platforms like Airbnb. Things came to a head in October 2013, when Schneiderman subpoenaed Airbnb, demanding that the company turn over host data for the more than 225,000 New Yorkers using the platform. By 2013, cities around the world were grappling with the regulatory challenges raised by sharing economy platforms like Airbnb. The United States Conference of May ors issued a resolution that summer in support of the economic potential of the sharing economy, and Brooks Rainwater, the director of research at the National League of Cities, was beginning to formulate a broad inquiry into how city governments of vary ing scale might balance opportunities with the right regulatory approaches. Airbnb was already in negotiations with a wide range of local governments to come up with viable way s to ensure hosts were pay ing local taxes on income earned. Schneiderman’s request for access to the company ’s host data, however, was about more than taxes. At the heart of the dispute was a little-known “illegal hotels” law, championed by the state senator Liz Krueger and the state assembly man Richard Gottfried, which outlawed New Yorkers living in multiple-unit dwellings from subletting their abodes for less than 30 day s. This was not an archaic throwback to the day s of illegal tenements; the law was passed in 2010, well after Airbnb started to gain traction. Legally, what this meant was that residents could still be Airbnb hosts so long as they were present in their apartments—there was no restriction on renting out a spare bedroom or couch. Additionally, owners of freestanding homes were not restricted in any way. However, the new law struck at the heart of what was appealing about Airbnb’s service in New York to visitors: being able to rent someone’s entire apartment in a real city neighborhood for a few day s when y ou visited, rather than pay ing for a high-priced hotel room in the more commercial and touristy downtown and midtown areas. There are numerous subtle legal and human aspects that shaped the evolution of Airbnb’s interaction with the attorney general. Some of the key events play ed out as follows. Airbnb responded to the request by issuing a public statement in which the company reiterated its commitment to work with, not against, local governments. While acknowledging that there may be a few “bad actors” abusing their platform to operate illegal hotels, Airbnb argued that it was unfair to penalize thousands of hosts acting in good faith in order to stop a small number of illegal hotel operators and slumlords that were never part of the Airbnb vision. In a statement posted on the Airbnb site on October 6, 2013, David Hantman, their global head of public policy at the time, assured hosts that “in the day s ahead, we’ll continue our conversations with the attorney general’s office to see if we can work together to support Airbnb hosts and remove bad actors from the Airbnb platform. We are confident we can reach a solution that protects y our personal information and cracks down on people who abuse the sy stem.” 1 But by 2013, thousands of New Yorkers had also already invested thousands of dollars in new bedding, towels, and guest room furniture to become the quasi-innkeepers of the city. Thousands of others had also started to rely on Airbnb as an inexpensive way to accommodate out-of-town guests in their own neighborhoods. In many respects, in a very short span of time, Airbnb had become part of New York. One Airbnb host, known only as Mishelle, started a petition through the newly formed sharing economy collective action platform Peers.org, one she promised to deliver to Albany in person. As part of her petition, she wrote: The reason this is happening is because of a poorly written law originally designed to stop slumlords from running illegal hotels with dozens of rental apartments. As a New Yorker just try ing to pay my bills, I don’t understand why they think I’m a slumlord. Let’s remove any confusion. I’ve created a petition to fix the law once and for all. We’re not slumlords. After ending a career in the military, I decided to return to school and complete my degree in Public Policy. Renting a room has been instrumental in helping me transition back to civilian life. It’s helping me achieve my dreams by providing me with a source of income that makes it possible for me to focus my energy on preparing for a new career where I can help people through better public policy.2 Mishelle’s “Save Airbnb in New York: Legalize Sharing” campaign eventually received over 200,000 signatures (far bey ond the initial goal of 20,000), and the campaign’s grassroots feel and widespread publicity added credibility and texture to Airbnb’s own responses. To many, the campaign drove home the fact that Airbnb’s hosts were not slumlords. As signatures on the petition grew, the face of Airbnb hosts became clearer. Although there were indeed hosts who were renting out multiple units in a hotel-like manner, it turned out that a majority of Airbnb’s hosts represented a remarkable cross-section of New Yorkers from all five boroughs and from neighborhoods that rarely benefit from the city ’s tourist industry, from grandmothers in Harlem to hipsters in Williamsburg to families on Staten Island. Most appeared to be regular people attempting to make a bit of extra money in a city where pay ing one’s rent or mortgage is often a struggle even if one has a full-time job. Not all of the reaction to the attorney general’s action was in support of Airbnb. Although many New Yorkers appreciated the extra money they could make hosting on Airbnb, and others liked the flexible short-term accommodation options it allowed, many others objected because their neighbors were letting strangers into their buildings in a way they worried would make their residential environment feel less safe. Others were concerned that Airbnb rentals might further restrict an already constrained residential rental environment if landlords or enterprising New Yorkers started renting out units on Airbnb instead of allowing them to be rented by long-term residents.3 A coalition of legislators and homeowner associations called “Share Better” launched in 2014 to generate grassroots opposition to Airbnb. The organization’s website proclaims: “Far from being a harmless service where New York City residents can share their homes with guests to the City, Airbnb enables New York City tenants to break the law and potentially violate their leases, it exacerbates the affordable housing crisis in our neighborhoods, and it poses serious public safety concerns for Airbnb guests, hosts and their neighbors.” 4 In May 2014, Airbnb agreed to hand over anony mized data on its New York City users, but only after a judge ruled that Schneiderman’s initial subpoena to access information on hosts across the state was too broad. Shortly thereafter, Schneiderman and his office issued a report, “Airbnb in the City.” This report indicated that between January 2010 and June 2014, a significant fraction of Airbnb stay s and revenue in New York City were from hosts with three or more properties. (However, additional data shared with me by Airbnb’s New York City Manager Wrede Petersmey er in December 2015 indicates that the fraction of stay s and revenue from hosts with three of more properties was significantly lower between November 2014 and November 2015. The same data has been shared with city council members and the press.) After the report was issued, Airbnb, upon request of the attorney general, sent a summary of housing laws to its New York City hosts. For example, they let hosts know that it is “illegal to host pay ing guests for less than 30 day s unless a permanent resident of the apartment (like the host or the host’s roommate) also stay s in the apartment during the guest’s stay.” 5 The summary also advised New York City hosts to consult their own lawy ers in order to determine the legality of their specific rentals. The evolving situation involving Airbnb and New York State provides an interesting microcosm of many of the regulatory issues I discuss in this chapter. State and city government resistance to Airbnb in the United States, both in New York and bey ond, persists as I am writing this book. In mid-2015, San Francisco’s city authorities released a study suggesting that Airbnb was reducing affordable rental housing significantly. Airbnb responded with its own study by Anita Roth suggesting the impact was negligible. (My own view, which I discussed in a New York Times op-ed, is that, as of 2015, factors like rent control and population growth are the primary contributors to the shortage of affordable rental housing in San Francisco.) The level of acrimony toward Airbnb from the hotel industry is captured well by the statements made by Vanessa Sinders, Senior Vice President and Head of Government Affairs of the American Hotel and Lodging Association (AHLA), at a 2015 Federal Trade Commission meeting to discuss the sharing economy, where she noted: “Right now, there is an unlevel [sic] play ing field that is compromising consumer safety, endangering the character and security of residential neighborhoods across the country, and changing the housing market in some negative way s.” In summarizing some of the opposition to Airbnb, she then went on to say “Airbnb is making a substantial amount of its revenue off of illegal hotels and those that are doing this as a business. These are not mom-and-pops. … These are not students making ends meet. They are rogue commercial interests.” 6 These ongoing conflicts tell us how complicated things can get when the impact of digital technology moves out of virtual space and into real phy sical spaces. The attorney general’s and AHLA’s objections to Airbnb highlight the extent to which regulations—in this case, the regulations that govern the hotel industry, as well as housing in New York City —struggle to accommodate the complexity of the sharing economy. True, there are a handful of bad actors who convert apartments into full-time hotels using the platform. And, much like the power sellers of eBay, they may have accelerated the platform’s early growth, although Airbnb has generally been publicly opposed to this practice. David Hantman, Airbnb’s global head of public policy at the time, spoke at the same Federal Trade Commission meeting and clarified the company ’s position: “We are also not talking about rogue hotels, or defending rogue hotels, or a law passed to do any thing other than punish rogue hotels. We are talking about try ing to get a law that allows people to do this once in while, and we can’t get that done.” 7 Of course, Airbnb is just one of many peer-to-peer platforms whose activities create new regulatory challenges. Uber and Ly ft have faced regulatory pushback in a wide variety of cities looking to enforce taxi licensing laws. In particular, given its global footprint, Uber’s regulatory battles and their outcomes have been especially intense and varied. In 2015, its low-cost UberPop service has been banned in Paris and Berlin, and the platform shut down its entire service in Spain at the end of 2014, its UberX service in Seoul in March 2015, and its entire service in New York’s East Hampton in June 2015. In April 2015, Dutch investigators launched a criminal investigation into Uber for providing “illegal taxi service” in violation of a court order. Meanwhile, the Brussels mobility minister has set out a plan to legalize Uber in Belgium by 2016, while in the United States, California and Virginia have enacted new laws legalizing Uber. Etsy has a different y et equally important set of challenges. Some Etsy makers enter the platform with well-established businesses. But, similar to most Airbnb hosts, the majority of Etsy sellers open their storefronts on the site as a hobby, investing only a bit of extra time and energy with the desire to make some spare cash. Naturally, these micro-entrepreneurs are not equipped to deal with different federal and state industry regulations and may not even be aware that these regulations exist. It also seems likely that if most of the micro-entrepreneurs who populate peer-to-peer platforms like Airbnb and Etsy were aware of industry regulations, they may never have pursued their small business ideas in the first place. Regulations, therefore, might create standards that sometimes make sense on a large scale but prove insurmountable to on a small scale. Should the microentrepreneurs using peer-to-peer platforms—for example, someone selling handcrafted toy s on Etsy or someone renting out their spare room on Airbnb—be held to the same standards as a major toy manufacturer like Mattel or a major hotel chain like Hilton? If so, who should be held accountable for meeting these regulations—the owners of the platforms, the microentrepreneurs using the platforms, or both? Is there a way to build trust and protect consumers while not placing insurmountable restrictions on microentrepreneurs? Compared to their predecessors like Google and Facebook, this new generation of platforms has had to gain sophistication with government relations very rapidly in order to survive. Some of the methods we’ve seen them use are quite novel and, in a sense, crowd-based in their own right. For example, in July 2015, Uber engineered a sophisticated campaign in New York City to fight a proposed cap on their provider numbers that was supported by May or Bill de Blasio. A key part of the campaign was the addition of a “de Blasio” button to their app, which illustrated, perhaps in a nonscientific way, how a customer’s wait time might be altered by the proposed cap (see figure 6.1). (Uber won that battle.)
Figure 6.1 The “de Blasio” button, part of 2015 Uber campaign to fight a proposed cap on providers. Similarly, in November 2015, Airbnb announced that it would facilitate the formation of a new kind of “guild,” launching a campaign that would create 100 home sharing clubs in 100 cities that could better channel the political power of its over 4 million users. The emergence of way s in which the consumer voice can be rapidly aggregated and harnessed as a force in a regulatory debate—a manifestation of the “new power” Jeremy Heimans and Henry Timms explain so compellingly in their December 2014 Harvard Business Review article—seems like a good development in general, since, in a sense, it gives consumers a seat at the regulatory table alongside the corporate lobby ists, government officials, and labor collectives.8 In parallel, many platforms have injected expert and experienced talent with into the mix quite early, ranging from David Plouffe and Ashwini Chhabra at Uber, David Hantman and Chris Lehane at Airbnb, and David Estrada and Joseph Okpaku