At one time, the sharing economy looked unstoppable.
In the aftermath of the 2008 recession, everybody was looking for ways to save and generally be smarter about using the diminishing amount of what they had. By some accounts the total value of everything people are sharing today—from apartments to cars to used clothing to unused parking spaces—is close to $26 billion. Yet, even the icons of the sharing economy—companies such as Airbnb and Uber—continue to face a host of regulatory and legal challenges that could impede, if not completely foil, their plans for future growth faster than they can disrupt the markets of the incumbents.
The more recent signs that the sharing economy may not be unstoppable are the new legal troubles swirling around Airbnb, the international couchsurfing community that already has a Tumblr- and Instagram-like valuation of $1 billion. In New York City, where apartment vacancy rates remain around 2 percent—regulators and lawmakers are concerned that Airbnb might be violating New York City’s “illegal hotel” laws that prohibit apartment owners from renting out rooms for less than 29 days at a time. The laws, which were originally intended to dissuade greedy landlords from drying up the housing supply even more by transforming residential buildings into pricey boutique hotels – now seem to apply equally as well to the cash-strapped condo owner with an extra room to let out for a few days.
With regard to its regulatory headaches, Airbnb is not alone. Think of mobile car-hailing business Uber, which has been involved in legal battles with regulators since Day 1. Even after Uber cleared initial regulatory hurdles in Washington, it still didn’t make it any easier for a ride-sharing company like Sidecar to enter the market in its wake. If a company with access to a fleet of cars scared regulators, imagine what they felt when they learned that anyone could start picking up total strangers in their personal cars. And it’s not just car-sharing and ride-sharing companies, it’s also the bike-sharing programs that face scrutiny – from legislators as well as from residents.
You can see where this is going—whether it’s apartments, condos, cars or bikes—market incumbents are making no secret of the fact that they don’t like the sharing economy. Fundamentally, “sharing” means that they will sell less of whatever they offer to consumers. Therefore, incumbents have an incentive to convince regulators and lawmakers that sharing economy start-ups are somehow “illegal.” In the name of protecting the interests of the consumer, they trot out all the regulations, codes and laws that are potentially being violated. In the case of Airbnb, it’s easy to see how lawmakers and regulators might be convinced to shut down certain economic activity if there’s the implied specter of transients coming and going from seedy apartments all over the city at all hours of the day and night.
But all of that assumes these sharing economy companies are something fundamentally new, a radical change to how the economy operates. That’s not quite true. What’s actually happening is that these sharing economy companies are going places where Adam Smith’s “invisible hand” cannot. They are re-calibrating supply and demand, giving consumers access to otherwise unused capacity or idle assets. Instead of representing an entirely new underground economy, the companies of the sharing economy represent more of a supplement, adding capacity while driving down prices in ways that help consumers.
So, no, don’t worry, the sharing economy is not illegal. Until the pace of regulatory change catches up to the pace of technological change, though, we can expect more of these legal and regulatory challenges to the likes of Airbnb and Uber. Until regulators understand how a route calculated via GPS might differ from the mileage calculated by a car’s odometer or a taxi’s taximeter, how could it be otherwise? The good news is that, as long as the entrenched market incumbents continue to argue that they’re only acting to protect the interests of consumers, you can rest assured that the sharing economy is not going away anytime soon.