Why Airbnb or Uber is welcome in some cities but not in others

Related Research Article:

Hong, S., & Lee, S. (2018). Adaptive governance, status quo bias, and political competition: Why the sharing economy is welcome in some cities but not in others. Government Information Quarterly.  Volume 35, Issue 2, Pages 283-290

Sharing Economy and Political Economy of Regulation

Whether or not U.S. residents can legally rent out their homes for short stays using home sharing services has become a source of controversy with the rise of companies that facilitate services such as Airbnb. While some cities have embraced services based on the sharing economy, which are thought to benefit the wider public, others have blocked progress in this area in favor of protecting the interests of existing businesses, such as hotels. 

As reported in the New York Times article, “New York City Looks to Crack Down on Airbnb Amid Housing Crisis” on July 18, 2018, the New York City Council has supported a bill that would force Airbnb and similar services to disclose addresses and names of hosts; this would allow the city to more easily enforce state law that makes it illegal for an apartment to be rented out for less than 30 days unless the original tenant lives there at the same time. 

The goal of the bill is to crack down on landlords using long-term apartments as short-stay units, which City Council argues has put pressure on an already tight rental housing market. A similar move in San Francisco cut Airbnb listings by about half, as reported in the San Francisco Chronicle in January 2018. However, Airbnb has argued that cities are bending to pressure from the hotel industry because of campaign contributions, and not keeping the best interest of the common New Yorker at heart, who uses the extra income that Airbnb provides to survive in a tight economy.

In a recently published study in the scientific journal Government Information Quarterly, we sought to understand the factors that differentiate cities that embrace versus those that block short-term rental services such as Airbnb. To do so, we examined the short-term rental regulations of 47 U.S. cities based on data provided by the R Street Institute, a think tank based in Washington D.C. 

We proposed that higher political competition would lead government regulators to consider the needs of the wider public more than those of the hotel industry. In other words, our argument was that “a greater level of political competition will tilt the balance against the entrenched market incumbents.” 

In addition, we showed that higher lodging tax rates would do the opposite and lead to more emphasis on the needs of the lodging industry, and predicted that cities with more tech-savvy residents (measured based on the city’s share of households with Internet access) would place more emphasis on the needs of the public when creating short-stay policy regulations.

As expected, we found that cities with a higher level of political competition tended to have more favorable regulations for short-term rentals, while cities with higher lodging tax rates tended to have less favorable regulations for services like Airbnb. There was no support for the notion that residents’ level of computer skills would influence how willing the government was to welcome this new tech-based industry.

Importantly, we noted that “the election may work as an institutional arrangement that allows the public to hold policy-makers accountable. This accountability mechanism may function better when officeholders face greater competition.” This suggests that city residents wanting to keep Airbnb in their cities should hold politicians accountable during elections, but that this is only likely to be of help in cities where the existing politicians face greater competition to hold their positions. In other words, in some cities, it will be hard to break the “status quo” until the political climate changes. 

In conclusion, our study highlights the importance of political competition and lodging tax rates as factors that influence local governments’ response to services based on sharing economies such as Airbnb. Findings suggest that the varied responses of cities to sharing economy services can be traced back, at least to some extents, to how much competition local politicians face as well as the tax rates set for the lodging industry.