Government Intervention & the growing pains of the Sharing Economy

Nov 19, 2013
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The 2008 financial crisis was arguably the catalyst for what became known as The Sharing Economy. Embodied by marketplace services like Airbnb for lodging, Blablacar for transportation, and even second-hand luxury goods marketplaces like InstantLuxe & Vestiaire Collective, the Sharing Economy cuts out the distributor, the retailer, the rental service – namely, ‘the man’ – and puts those who have supply squarely in front of those who have demand. The “Peer to Peer” economy may feel like a large step backwards into an archaic bartering system, but the reality is that many people, hit with unemployment, slashed or stagnating wages, and other hard times, are realizing that all the things that once seemed necessary to own, are not. The P2P housing rental market size alone is said to be $26 Billion, quoted earlier this year in The Economist.

While startups one-by-one figure out how to master supply & demand, to circumvent overhead cost, and create a frictionless marketplace, ‘the man’ has been contemplating just how to squeeze itself back into the mix. In the past month in New York, a proposed law to outlaw short-term rentals less than 30 days has left services like Housetrip & Airbnb speechless:

“Politicians are choosing to attack short-term holiday accommodation because the people who use this kind of accommodation can’t vote. Millions of euros are spent by holiday apartment users in the cities they travel to every – most of those funds in the very community or neighbourhood they are calling home.” – Arnaud Bertrand, CEO Housetrip

Now European cities like Paris & Berlin are looking to follow suit on this practice. In an interview with Challenges the deputy mayor of Paris Jean-Yves Mano said that the law will look to restrict not the individual, but the real-estate professionals who, during the economic crisis, have taken to converting their properties into (illegal) short-term vacation homes. This practice, Mano says, not only takes these apartments off the market, but it constitutes fraud, as the owners are not paying proper taxes on such a business – ah, money, we knew it would come down to this.

And that’s the real question when it comes to the Sharing Economy: how long did startups thing they could enable individuals to essentially become businesses without the tax-burden and without catching the attention of local governments? Where there’s an economy, there’s a tax.

“We would love to find ways to work with the cities to find solutions to things like taxation, safety and security. And we are confident we could find those solutions. But neither city is willing to talk. You can’t say you are supportive of tech and the sharing economy if you make moves to close down the fastest-growing part of that sector.” – Arnaud Bertrand, CEO Housetrip

A proposed tax on short-term car rentals was also recently voted down in France’s National Assembly, though startups like Drivy are still worried that taxing revenue generated on its platform could harm the potential for its market to grow.

According to the Dailymail, Berlin’s equivalent law, which will ban renting for a duration less than 30 days, is set to take effect earlier this year, though there is a two-year buffer before prosecutions against offenders will begin. Said to be a response to the growing demand for housing in the fast-growing city of Berlin (real estate prices have growing more than 50% in the past 8 years), and is meant to convert many short-term holiday rentals into long-term residences.

Working with vs. Working Against

Homepage Screenshot

As new economies are created, whether it be the sharing economy, the internet advertisement economy, or otherwise, the reality is that government regulation and taxation is inevitable; however, for now, it seems that the government’s reaction in New York has been more emotional than logical – that is, they are applying old protectionist ideas to new markets, instead of considering the evolution in habits that is taking place. Typical of government, it is likely that there will be a need for more concrete action than online petitions such as this one set up by Peers– an internet reaction to an internet problem may not be the solution when politicians distinctly unfriendly to Internet businesses are the ones to convert.

On the other hand, Peer-to-Peer services need to stop pretending that they are not enabling people to circumvent tax-paying. Blablacar has an ongoing battle with unauthorized shuttles making dozens of trips per month in 8-person vans, and Housetrip has to deal with people who are making $100K+ off of renting via their service. It’s not that they’re circumventing health & safety laws – these things more or less work themselves out, as consumers tend not to use a product they don’t trust – it’s the high amounts of undeclared revenue. If P2P housing rental is a $26 Billion economy, how much of that do you think is declared revenue?

Following Google’s example – or not.

One of Google’s largest success has been its ability to manage influence over governments who, like clockwork, look to tax, inhibit, regulate, or otherwise modify Google’s way of life. While Europe still has a long way to go before it figures out how to tax a Dublin-based company making billions off of European citizens, a smaller, more manageable problem lies in front of it, that it can choose to either try to crush, or work with.

For now it seems that Paris’ proposition, from the outside, looks to be the most reasonable one, with Berlin’s and New York’s coming up much more strict, especially in terms of positioning by the government.

“Both Paris and Berlin are contemplating short-term rental bans because they believe that more stock is needed for long-term housing. Despite this, both cities are also trying to position themselves as leaders in the technology sector and claim that they are business positive.

“Success in technology creates jobs and jobs create housing demand. Our studies in Berlin have found that of the approximately 9,000 short-term rental properties available for rent in the city, only 3,300 would become long-term rental apartments if a law was put in place. This in a city of over 1.9 million residences. That’s less than 0.005%. These numbers are similar in Paris.” – Arnaud Bertrand, CEO Housetrip