Published On: July 18th, 2017 / Categories: shared economy, short term rentals /

sharing economy

As noted in a recent issue of Stanford Lawyer, the sharing economy is a deceptively innocuous phrase used to describe a collection of “disruptive” enterprises that have emerged in the last number of years. Writing in my blog on this subject a couple of years ago, I pointed out that, while these new ventures offer excitement, novelty and variety, they also come with unanticipated risks. For example, as Airbnb launched and pursued its initial strategy of rapid growth, a variety of legal issues emerged for hosts and guests alike.

These days, businesses like Airbnb and HomeAway have become commonplace in the short-term rental space, offering innovative alternatives to traditional hospitality options. As these companies continue to develop new experiences for their users, they are also taking steps to make themselves more attractive to certain audiences that were previously hostile to their business model. Indeed, as part of a two-year strategy to prepare for an IPO, Airbnb now appears to be cooperating with local governments to find ways to work within their regulatory schemes.

The settlement recently announced by Airbnb with its hometown of San Francisco is a case in point. Under the terms of this arrangement, companies like Airbnb and HomeAway will collect data on people who rent their homes out for periods of less than a month, and supply that information to San Francisco authorities, who will then vet and register those hosts. This settlement is similar to agreements that Airbnb recently announced with the cities of Chicago and New Orleans.

Airbnb has also announced a program that gives landlords a “piece of the action” if their leases permit tenants to serve as hosts.  Called the “Friendly Buildings Program,” it is currently being promoted by one New Jersey apartment builder as an incentive in marketing its units to younger renters. David Barry, president of Ironstate Development, concluded that “many younger renters already had experience as either rental hosts or customers at home-sharing sites,” so offering this arrangement seemed like an attractive perk for that demographic.

While these businesses appear to have hit the right note with this generation of consumers—60% of those who rent on Airbnb are Millennials –conflicts can develop when the transient interests of the more youthful users of these services butt up against the established interests of older neighbors. A microcosm of these clashes has been playing out over the last number of months in the Town of Los Altos Hills, one of the wealthiest suburbs in the United States, where pop sensation Beyoncé Knowles hired a local manse for $10,000 per night in early 2016 for Super Bowl 50, and where wealthy speculators have been buying houses solely to hire them out for expensive weddings and other such pricy events.

At a recent town hall meeting, residents of this horsey community of 8,400 aired their views about the impact that services like Airbnb and HomeAway were having on their neighborhoods. By and large, local sentiment was unfavorable towards these temporary arrangements, decrying the trash, din, traffic, and unfamiliar outsiders attracted to their idyll. Town officials further noted that their local ordinances do not allow any form of rental, contending that this means that short-term rentals are prohibited. Still, it was unclear whether a consensus was reached regarding possible regulatory action, so further meetings and discussion appeared to be needed.

It is clear that expansion of the sharing economy with respect to temporary accommodations will be a function of negotiation and adjustment in the future. Those considering property purchases with an eye towards taking advantage of services like Airbnb and HomeAway to generate revenue may unexpectedly find the regulatory ground underneath their feet shifting, as many local communities attempt to reach a balance between competing interests. As is often the case, caution and deliberation are warranted.

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