On May 10, New York administrative law judge Clive Morris imposed a civil fine of $2,400 upon New York city resident Nigel Warren for renting out his East Village apartment on Airbnb, an online room-sharing service based in San Francisco. Holding that Warren violated New York hotel law which prohibits residents from renting out rooms for a time period of less than 29 days, Morris has effectively banned Airbnb from operating within New York City limits.
The decision is terrific news for the New York City hotel industry, which will no longer have to face high-quality competition from individuals renting out gorgeous rooms at attractively low prices in desirable neighborhoods. But it benefits nobody else – not apartment owners forced to forego valuable income from potential renters, not middle-to-low-income tourists looking for an affordable place to stay the night in an already-expensive city, and not the overall city economy, which has now been saddled with hundreds of thousands of square feet in unusable room space. It’s a lose-lose-lose.
New York’s hotel law, as John Stossel points out at Reason, looks suspiciously like cartel-driven monopoly protectionism. It’s part of a recurring public policy pattern: entrenched commercial interests use the power of the state to shut out up-and-coming competitors, stifling innovation and progress while simultaneously preserving market share. That can be done by raising market entry barriers to prohibitive heights – say, by manipulating archaic taxi regulations against companies like Uber – or by simply pushing laws that protect your economic niche against competitive intrusion, as automobile dealers did to prevent Tesla and BMW from bypassing costly middlemen and selling directly to consumers. And the Senate recently appeased big-box retailers like Walmart and Target by passing a national Internet sales tax, which would require small businesses who sell goods online to collect sales tax (a regressive duty that hurts low-income citizens the most) in every jurisdiction to which they ship. Consumers and energetic new businesses lose; inefficient old money wins. (In other news, the Pony Express has sued Gmail for offering superior mail delivery service, New York has barred the electric lightbulb due to a complaint from the Candlemakers' Association, ExxonMobil has petitioned the federal government to prohibit production of Elon Musk's new hydrogen-fuel-cell-powered sports car, and United Airlines is filing suit against the inventor of the personal jetpack for violating airspace regulations.)
Most broadly, however, the law’s reluctance to keep pace with the sharing economy reflects a systemic lag in government reaction time to the realities of changing technology. Last October, Minnesota announced that California-based startup Coursera would be prevented from offering free online education within state boundaries (a decision that Minnesota thankfully reversed after an outburst of public criticism.) As the sharing and online economy booms, regulators are going to have to adapt quickly and flexibly to new ways of meeting consumer demand. Whether that goal can be achieved through self-regulation – via internal Yelp-style rating systems and review, for instance – or by revamping rigid commercial laws to account for a constantly shifting economic landscape, it’s time for the state to catch up to the preferences of the people it governs, not the demands of special interests preserving their economic privilege at our expense.
As citzens, consumers, and taxpayers, we should settle for nothing less.