Local Politics: City's commitment to innovation tested with new Airbnb regulations

Rob Moore

Last week, City Council held its final public hearing on a proposal to regulate people who rent their houses or apartments on platforms like Airbnb. The most recent draft of the ordinance drops previously proposed caps on the number of days hosts can rent their apartments, and it includes a tax on annual fees hosts pay to platforms.

Full disclosure: I am a user of Airbnb, both as a guest and a host. It is my preferred way to travel, and I have offset costs when I travel by renting out my Brewery District apartment. I like the service.

Opponents of Airbnb and similar services worry that the growth of such services can restrict the supply of housing, thus leading to higher costs for renters. They also worry about the impacts of such services on neighbors, and how the use of residential spaces for hospitality purposes could undermine local zoning authority.

Ultimately, regulation of a new industry comes down to a straightforward public policy tradeoff: How do we allow innovation that can give people the opportunity to buy and sell new products while at the same time compensate those who lose out from the adoption of a new technology?

Some cities have favored regulation. Putting caps on the number of days a host can put a residence on the market theoretically would ease the strain on the housing market, assuming the prevalence of platforms like Airbnb is heavy enough to influence the market in the first place.

Regulation can also impede innovation, however. A close friend of mine launched a startup house in Nebraska, hosting about 25 entrepreneurs in a residential incubator and financing the program with proceeds from rooms rented out on Airbnb. His main revenue stream for this venture, which was starting new businesses in the city, would not have been sustainable if he were limited to a certain number of renting days per year.

Concerns about equity and “compensating losers” of a technological change are often more efficiently addressed with a tax than a regulation. The City Council's decision to shift its focus from blunt regulations to a taxation scheme that can then be used to finance affordable housing is a prudent approach that slows the speed and tempers the impact of innovation without squashing a new technology outright.

Targeted, thoughtful regulations can handle some of the other externalities of short-term rentals. Enforcement of quiet hours and civil liability can protect neighbors from inevitable problems that arise from temporary guests in apartment buildings. Taxation of Airbnb hosts can even be used to compensate neighbors through a property tax credit. All these options are better than blanket caps and bans.

As new technologies come about, the city will be faced with new regulatory challenges. Hopefully it continues to take the prudent tack it has taken with Airbnb.