Last week, an administrative law judge in New York City fined the unlucky host of an Airbnb rental $2,400 for violating a 2010 city law meant to crack down on illegal hotels. The penalty – a hefty cost for subletting your bedroom for a few nights to some Russian ladies – brings the sharing economy more generally, and the specific idea behind Airbnb, to an inevitable crossroads: All of this small-scale swapping and selling of stuff and services (a ride in your car, a room in your home) is dubiously legal just about everywhere. But now that these services are growing ubiquitous – and bringing with them some benefits that cities should love – dubiously legal won't do.
City regulation, more often crafted with hotels or taxi companies in mind, typically has no clue what to make of people like Nigel Warren, our Airbnb host in New York. The city law in question in this case was created to target shady property owners converting affordable housing into fly-by-night hotels (without having to comply with the zoning, safety and tax requirements an actual hotel must face). Warren was clearly not doing that. But the law says that people can't rent out all or part of their property for less than 30 days. And under that legal standard, just about any Airbnb host in New York is at risk.
The 2010 law also contains a "shared space" exemption, and in this case, the Russian ladies were arguably "sharing" the apartment with Warren's roommate, who was present during part of their visit (argues Airbnb: "We believed, and still believe, that as long as a host is present during a stay, the stay is legal"). But Judge Clive Morrick was unmoved by that logic.
On its public policy blog, Airbnb says that this is a debate about "whether to allow regular people throughout New York to open their own homes to travelers and help pay their own bills while doing so." And it underscores that appeal to common sense with some sympathetic character sketches:
As so many of those same legislators have made clear since then, the target of the laws was never intended to be these individual residents. These are not illegal hotel operators trying to make a quick buck. These are people like Maria, who has used her income to work less and spend more time with her husband. Or Emmett, who still keeps in touch with the friends he’s met from Europe, Asia, and Africa. Or Evelyn, who saved her home from foreclosure with the money she makes from Airbnb.
The problem, though, is that there is no such legal distinction for "regular people just trying to make international friends and stave off foreclosure." The difference between Evelyn and the black-market hotelier – or even a legitimate hotelier – may be obvious to us all. But it's not clear in the law. So how do you fix that? How do you draw a neat line between "just paying the bills" and "raking in boatloads of profit"? If a city decides that people like Nigel Warren help keep housing affordable, and tourism feasible for more out-of-towners, how do you classify Warren so that he doesn't have to change the zoning of his bedroom to sublet it for a few nights?
Should cities draw the line based on how many homes you own, or the number of nights you rent them a year, or the money you make doing it?
The Sustainable Economies Law Center has been thinking about this for some time, and they've just posted a timely policy brief for cities on the topic over at Shareable. The SELC argues that people temporarily exchange housing for money in three ways: You can rent another room in your home while you're present; you can rent your own room while you're out of town; or you can rent out another home that exists more or less for permanent vacation rental. The SELC is primarily interested in cities figuring out how to enable the first two options.
It's reasonable for cities to create some standards for how residents might operate what the SELC calls "host homes" or "no-host homes." Perhaps regulation could require the host to register the property for a small fee, while limiting the number of nights in a year that guests can stay there (this could be a concession to neighbors who don't want their block or building to become a revolving door for tourists). The SELC also floats a cap on the income that a host can make in a year, tied for example to the cost of actual rent or the market value of a property (for example: your Airbnb income can't exceed 75 percent of your actual yearly rent and utilities).
This last idea would certainly codify the notion that the "sharing economy" is fundamentally a different kind of economy, one where the ultimate goal for individual participants isn't to make as much profit as possible.
If cities could create some legal space for people like Warren to do this, then they could also begin to tax him more easily. The SELC endorses this idea at a rate that would be significantly lower than commercial hotel taxes. Different cities will obviously need to tweak all of these numbers – the income cap, the length and number of stays, the tax rate – but if they don't try to tailor new laws for this new situation, they'll be passing up on a lot of benefits. And the potential tax revenue is only one of them.