Two cheers for San Francisco. Last Tuesday, Mayor Ed Lee signed a law legalizing the short-term housing rental market, giving regulatory cover to the popular peer-to-peer lodging service Airbnb.
It’s worth studying this debate closely for what it reveals about regulators’ weakness — and the limits of politics in the age of the Internet.
On the face of it, the law authorizing Airbnb should have passed smoothly. The company is booming. It counts thousands of San Franciscans as users. It has a staggering $10 billion market valuation, a compelling story, and the unflinching support of the city’s tech elite — including the tech-friendly mayor himself.
And yet, for all that, it took a full two years of politicking to pass the law. Four members of the Board of Supervisors voted against it. Along the way, the mayor and other supporters were accused of “selling out the city.” To top it off, Sen. (and former San Francisco Mayor) Dianne Feinstein came out strongly against Airbnb, warning that the law “would destroy the integrity of zoning throughout San Francisco.”
In New York, too, Airbnb is under fire. Attorney General Eric Schneiderman branded nearly three out of four of Airbnb’s New York City rentals illegal and has forced the company to turn over sensitive user data.
It’s worth keeping in mind that Airbnb didn’t invent the peer-to-peer rental market. It has existed off-line for ages. And it lived on the Internet long before Airbnb. As far back as the late 1990s, a renter seeking a room could find it on sites such as Craigslist. Airbnb simply made an existing market broadly accessible and vastly more user-friendly.
That success has come at the price of loud criticism. Airbnb’s critics accuse the site of driving down available housing and driving up rents. It alters the nature of neighborhoods, they say, transforming them from places for families to live into places for tourists to visit. Most crucially, they accuse Airbnb operators of running de facto hotels — without having to pay an actual hotelier’s taxes, without having to meet an actual hotel’s safety standards, and without supporting a traditional hotel’s range of jobs.
Enter the regulators. San Francisco’s new law puts the tax issue to bed. Rentals of fewer than 30 days will be subject to a 14.5 percent hotel tax, netting an estimated $11 million for the city. Hosts must also register with city officials, live in their homes for at least nine months of the year, and carry liability insurance.
Usually, this is the point in the story where the company, frustrated by government intrusion, issues an angry statement and tries to rally the public to its side. Not in this case. Airbnb’s head of public policy called the San Francisco law “a huge step forward” and a “great victory.”
How can this be? Why would Airbnb embrace new taxes and fresh regulation? Why, for that matter, does it seem so unfazed by its opponents in local government — even going so far as to pick completely new fights with food safety regulators over “dinner-sharing”?
Because, to Airbnb, none of this matters. In the two years the government spent hashing out the rules, Airbnb quadrupled its available rentals from 120,000 to over 500,000. While city officials debated tax percentages and lawyers issued subpoenas, Airbnb more than doubled its users and primed itself for a public offering valued in the billions of dollars.
This is what the Airbnb-versus-regulators narrative misses. Megan McArdle, writing at Bloomberg, laments that she “hasn’t seen a convincing explanation of how [Airbnb] plans to navigate attacks like those from the New York AG” and warns that “failure to develop a good strategy will significantly hinder its growth.” But the San Francisco experience proves the precise opposite: All Airbnb had to do to earn official sanction was make itself too big to fail. And remember, it made those gains when its services, in some of its biggest markets, were largely illegal. Once it achieved ubiquity, the regulators had no choice but to catch up.
In the end, the paradox of the debate over Airbnb it that the debate itself hardly mattered at all. That doesn’t mean that Airbnb is going to stop investing in lobbyists, or that New York’s attorney general is going to give up the fight. It does mean, though, that most decisive political battles are the ones to win clicks, shares, users, and funding — battles fought online, not at city hall. Ultimately, this isn’t a story about a fight between a corporation and regulators. It’s a story about regulation’s growing irrelevance.
Look at it this way, and San Francisco didn’t legalize Airbnb. Airbnb legalized itself.
