Peer-to-Community: Making the Sharing Economy Work for Your City
What Peer-to-Peer Services Teach Us About Shifting Community Needs
We teach our children from an early age about virtues of sharing but how these virtues are practiced in our neighborhoods and at a community scale often present complications that our schoolyard lessons never quite prepared us for.
Nationwide, local entrepreneurs are developing intriguing new ways to meet evolving community needs and shifting demands that test how we currently govern our cities and assure the health and safety of residents.
These innovators recognize that we are shifting from a desire for ownership to a demand for access. Growing technological advances create platforms that allow people to fulfill their needs by accessing goods and services at the same time that others can benefit from “idling capacity” – a society’s untapped social, economic and environmental value of underused or idle assets.
A survey completed by Latitude and Shareable Magazine (Gaskins, 2010) found that social media is breaking down trust barriers so that the vast majority of participants (78%) – across income levels – are now more open to sharing with strangers. Furthermore, 75% of respondents thought that sharing-economy practices would increase in the next five years.
This growing portion of the local economy offers people a way to capitalize on their underutilized assets to meet different community needs from sharing rides to homes, according to April Rinne from Collaborative Lab, who recently discussed idling capacity and the sharing economy at the LGC’s 2014 Ahwahnee Conference.
Airbnb is one high-profile – and occasionally controversial – example of a new platform that matches idle capacity with demand for access by helping people rent out their extra space in their home – from a bedroom to an entire house – as well as more unusual spaces such as castles, boats, manors, tree houses, tipis, igloos and private islands.
The potential for this new economic model is promising. An Airbnb study found that the Airbnb community in the United Kingdom generated more than £502 million in economic activity in one year alone and supported more than 11,500 jobs (we are not aware of an equivalent study done to date for the U.S).
Beginning in 2008 with a rented air mattress to meet hotel overflow from a large conference in San Francisco, AirBnb now has over 600,000 listings in 34,000 cities and 192 countries.
Underutilized “spaces” in cars are also opening up to the sharing economy. Four years after Airbnb started up, innovators in the same city developed Lyft, an on-demand, car-sharing service, which matches people who need a ride with car owners interested in providing a ride to earn extra cash.
Lyft told TechCrunch last December its revenue was growing at a rate of about 6% every week. Uber, another similar car-sharing service, was reported to be valued at $3.5 billion at one point last year.
These services capitalize on the assets people own and aren’t using – 80% of seats in cars on the road are empty, and the average car owner only uses their vehicle one hour per day.
Have an extra room that you only use a few times per year for guests? Services like Airbnb and Vacation Rental By Owner (VRBO) let you offset your rent or mortgage by renting out your home.
Have a house project but don’t want to clutter your garage with expensive tools you’ll use once a year? Bay Area cities like Oakland, Berkeley and San Francisco have tool-lending libraries where you can rent them out.
By sharing commodities, these services can reduce consumption and support environmental goals. However, they are far from being a panacea for every local community. Cities across California are grappling with how these new start-ups fit into their existing regulatory framework. Local elected officials have real concerns about safety and liability, and about maintaining affordable housing, diverse neighborhoods and the social fabric of their communities. Moving forward, it will be critical to assure that these new initiatives don’t come at the cost of the public health and well-being of residents.
On the jobs front, taxi drivers are outraged that ridesharing services such as Uber and Lyft aren’t held to the same standards they are and are alarmed about the growing market share that ride-sharing businesses are capturing.
San Francisco Supervisor Eric Mar said at a March hearing on the topic that cab drivers “are losing about $15 per shift or even more,” and estimated at peak times there are as many as 4,000 ride-service vehicles on the streets.
These economic issues – as well as near-term concerns over insurance gaps, criminal background checks of drivers and vehicle inspections – have led some cities to ban car-sharing services.
San Francisco city officials are exploring whether they have legal authority to regulatetransportation services such as Uber or Lyft as the taxicab industry continues to complain aboutimpacts to taxi revenue, public safety and disability services, according to a recent San Francisco Examiner article.
San Francisco is also in the midst of a very public conflict over the impacts of house-sharing services. Recent media coverage has described concerns over the potential long-term loss of affordable housing stock (if rooms are consistently used for short-term rentals), the impacts of share-rentals on neighborhood quality of life and diversity (if there is a steady influx of tourists and other less savory characters recently lamented on SiliconBeat and SF Gate blog). While these services may help tenants offset their rent, for landlords, there may be situations where tenants are receiving hosting fees in excess of the monthly rent – effectively using other people’s property to make money for themselves.
Undoubtedly, any industry – especially emerging ones in the first stages of their development – will have its bad actors, and real concerns and unintended consequences will likely surface with any disruptive technology or cultural shift. The challenge for local and state government in addressing the practices of this evolving sharing economy is to design regulations that can block bad actors, mitigate negative impacts, and provide policy flexibility to respond to community and business concerns.
Airbnb hosts bringing in $400,000 over three years (as New York state’s 40 top-grossing did according to data published by the New York Times) and car owners making $1,000 a month renting out their car (as some RelayRides owners reportedly did) should fall under traditional hotel and commercial business categories and not shirk the associated taxes and regulations.
But for now, these bad actors are the exceptions, not the rule. Almost half of Airbnb hosts are middle-class, making less than $72,000 a year; and 87% of hosts are supplementing their income by renting out their primary residence.
It is the role of local government to provide opportunities that are supported in their community in a way that appropriately addresses the few bad actors through local regulations.
The City of San Francisco is doing just that. This month, it moved to lift a ban on short-term rentals that will allow people to offer apartments or rooms as vacation rentals with new requirements that address concerns of neighbors.
In multiunit buildings, the legislation would allow short-term rentals only in apartments where someone lives 75% of the year, effectively banning a unit from becoming a fulltime vacation rental. It would require anyone renting out their place to pay hotel taxes, hold liability insurance and register with the city every two years. The law won’t override lease agreements, and rent-control limits still apply to short-term rentals.
It also requires these “hosting platforms” to collect and pay taxes. Airbnb has indicated that it will start collecting the city’s 14% hotel tax by summer.
Other cities are grappling with the same challenges. At least seven have prohibitedcompanies like Uber and Lyft, including New York City, Portland and Philadelphia. Across the nation at least eight other cities are debating regulations as well. Last month, Seattle took a step toward approving regulations that place a cap of 150 vehicles per company and institute a $50,000permit application fee. Laws in New York have effectively shut down popular car- and home-sharing services.
Trying to Fit a Square Peg in a Round Hole
Prohibitions against renting living quarters to out-of-towners are just as outmoded as attempts to ban cars shortly after their arrival in 1908, said Airbnb co-founder and Chief Product Officer Joe Gebbia.
”Can you believe cities tried to outlaw cars in the United States? Imagine driving car for a year then going back to horse and buggy,” Gebbia said at the LeWeb London conference. Eventually, “the policymakers adjusted to meet the demands of the people. What people demand is what the policies serve.”
The problem is that most taxation and safety rules were designed for hotel chains, rental car companies with massive fleets and brick-and-mortar retailers – not for individuals renting out a room or a ride. And what about the expanding companies that provide the base for this sharing? Shared economy initiatives that straddle individual, small-scale exchanges with growing companies that support them don’t neatly fit within these regulations.
“Not surprisingly, there’s a misalignment between the rules developed for the older, industrial-age, ‘analog’ ways of shared consumption, like staying in hotels or hailing taxis, and the peer-to-peer business models enabled by the new digital platforms,” Arun Sundararajan wrote in the New York Times last month.
He warned that, if the gap between the old regulations and the new models isn’t closed soon, communities risk impending economic growth; and if regulatory oversight isn’t enacted where appropriate, it could lead to a backlash that damage both the business platforms and their millions of suppliers.
Food for Thought
When Los Angeles’ current food truck trend started in 2008, local governments grappled with many of the same issues – local ordinances weren’t sufficiently able to respond to the rapid growth of mobile eating establishments that didn’t neatly fit within current designations.
Food trucks had the potential to provide community benefits: they met the needs of hungry residents in underserved areas and tested new entrepreneurial concepts without the large upfront costs. There was also a clear need for appropriate food safety standards, however.
Some cities responded passing ordinance to make sure the mobile food movement meet the goals of entrepreneurs, community members and city standards alike.
Chicago saw food carts as a way to serve food deserts and create new food-vending jobs. So they passed an ordinance in 2012 that allows licensed produce vendors to sell “whole and uncooked agricultural, plant-based items, including, but not limited to, fruits, vegetables, legumes, edible grains, nuts, spices, herbs and cut flowers” on moveable stands.
The ordinance and the low entry fee helped programs like Neighbor Cart prosper, which now provides carts for lease and offers training support to help at-risk Chicagoans earn a paycheck while learning valuable business skills.
Where do we go from here?
Similar to the opposition that food trucks faced from brick and mortar restaurants, local and state governments must grapple with how these new models of the sharing economy fit into the current community paradigm.
Last September, California became the first state to regulate ridesharing when the California Public Utilities Commission created a new class of “transportation network companies” (TNCs), a move that legalizes peer-to-peer services like Lyft and Uber.
Under terms of the ruling, TNC services will be required to obtain a license from the CPUC, have vehicle inspections, driver training programs, a “zero tolerance” policy on drugs and alcohol, criminal background checks of its employees and a minimum of $1 million in liability insurance.
The CPUC will also review the rules in one year to evaluate how the system is working. Lyft, Sidecar and Uber have indicated that they already comply with most of the requirements under the new state rules.
This ruling still leaves local officials with concerns about street safety and the financial health of the taxi industry in their cities, which San Francisco has been addressing through recent local hearings.
The Shareable and Sustainable Economies Law Center’s Policies for Shareable Cities: A Sharing Economy Policy Primer for Urban Leadersprovides local policy options for communities to consider to help these start-ups (and future companies that will inevitably follow) while providing local government more oversight and control of potential unintended consequences.
For example, zoning laws in many cities make it nearly impossible for residents to host short-term guests in exchange for monetary compensation, because residentially zoned neighborhoods generally prohibit converting your house or apartment into a “place of business.”Cities like Palm Desert, CA, and Cape Elizabeth, ME, are adopting more nuanced permitting policies and fee structures to allow short-term guests.
The report suggests that to prevent residential units from becoming too hotel-like, cities could adopt policies that limit the number of paid houseguests per year, restrict the number of guest nights, or cap each household’s gross income from short-term rentals at, for example, no more than 50% of the monthly costs associated with the unit. These provisions recognize that the purpose of sharing is not necessarily to profit, but rather to offset the cost of housing.
By making room for sharing in a way that meets their community needs, cities are diversifying local tourism opportunities and helping residents to offset high housing costs.
A typical Airbnb host in the UK earns the equivalent of $4,740 per year by renting out space an average of 33 nights per year; and 63% of hosts said that their Airbnb income helped them pay bills they would otherwise struggle to pay.
These new models also help “share the wealth” of a region’s tourist dollars. For example, the same study found that Airbnb guests stayed in traditionally less visited towns and neighborhoods and supported the local businesses there (at an average of $250 per visitor). In London and Edinburgh, about three-quarters of Airbnb properties are located outside the main hotel areas, and more than 40% of visitor spending occurs in the neighborhood they stay in.
As local elected leaders, it’s up to you to decide whether or how peer-to-peer sharing initiatives fit into your community’s regulatory framework. There is no doubt, however, that innovation initiatives that serve an unmet demand will advance and the supply and demand of products and services will continue to evolve.
Communities that are able to provide flexible and responsive local policies that support entrepreneurs and the health and safety of their residents are likely to thrive and prosper –whatever innovations the future might hold.