The Care and Tear Effects of the Sharing Economy

Image Credit: Airbnb (Facebook: Creative Commons)

The growth of sharing platforms such as Uber and Airbnb has introduced a new market place for international regulation to contend with. Also known as peer-to-peer markets, small suppliers (usually individuals) are able to supply excess capacity that would otherwise go unused. Liberal supporters of the sharing economy have championed the efficiency gains, pointing to the explosive growth of sharing platforms as a testament for an un-met demand for these markets. Critics however have suggested that the growth of share economies is a result of loopholes in regulations. Uber drivers, for example, face far less stringent regulations than taxi drivers, whilst Airbnb hosts are often able to avoid the occupancy tax traditional hotels and B&Bs must cough up. While some local governments have responded by imposing certain taxes and regulations, enforcement is immensely problematic.

One key idea polarising opinions on these sharing platforms is the spill-over effect on housing affordability. In multiple national markets, including the Australian housing sector, Airbnb has come under fire for contributing to the housing affordability crisis. In response, co-founder of the sharing innovation Joe Gebbia has argued:

“There is a common misconception globally that the platforms about property group and big property groups renting out entire apartments full-time… the majority of our hosts are everyday people... who rent out the residence… or an extra bedroom…”

Indeed, Airbnb has cited a source by the tenant’s union of NSW that home shares were not a factor pushing up rents in the area. Counter-arguments or debate has been stymied by the fact that this unprecedented development and growth of the new share economy has evolved too rapidly for studies to keep up with. Therefore, establishing a tangible connection between global housing affordability issues and Airbnb has been problematic.

In 2016, a collaborative working paper by economists at the University of California Los Angeles, the University of Southern California and the National Bureau of Economic Research have found a significant correlation between an increase in Airbnb listings and a subsequent increase in both rents and housing prices between 2012 and 2016. The authors, Barron, Kung and Proserpio (2017) utilise a dataset gathering Airbnb listing covering the entirety of the United States; further finding that this effect is more substantial in zip codes with a smaller percentage of owner-occupiers. This is consistent with the logic that landlords reallocate their homes from long to short term rental markets. Although the findings from the study can only generate conclusions for American constituencies, it is unlikely that the substantial impact on housing affordability present in a US context would be ill translated to other liberal markets in Australia, Canada or Europe.

While critics of home sharing may feel vilified, the study suggests additional ‘caring’ bi-products that might offset these effects. Findings indicate that home sharing, through platforms such as Airbnb, may actually increase the value of homes by enabling owners to capitalise on underutilized space. Furthermore, preliminary suggestions for future studies have also called for an examination of the potential positive spillover impact on local business, if home-sharing drives up a demand in tourism. Lastly, but importantly for all markets, Airbnb has introduced a new mechanism by which local housing supply can be scaled back in response to negative demand shocks.

Thus, rather than heavy resistance through blanket city-wide bans, such as those in Berlin and New York, or regulations with distorting effects, these finding suggest a middle-way. Given the ‘care’ and ‘tear’ effects of the share economy, regulations on the housing sector of the share economy should focus on limiting the reallocation of houses from long to short term markets, without discouraging home sharing by genuine occupiers. This could be achieved by a policy that levies occupancy taxes only on those home sharers who rent their entire home for short periods of time, or perhaps for governments to enable ways in which home owners could prove occupancy in order to avoid taxation.

Concerns regarding Airbnb are not confined to housing affordability. Such issues as noise pollution effects, safety mechanisms, and addressing racial discrimination require far more regulatory scrutiny before governments can settle on an approach to facilitating and regulating this new sphere. Greater funding towards research that will generate a better understanding of the impact of the share-economy and collaborative-governing policies will help facilitate more effective, and less polarising, policies. After all, as Uber has demonstrated in multiple legal challenges, the share-economy is not transient. In Mr. Gebbia’s words, “the genie is out of the bottle and it’s not going back in.”

Hayley Pring is the International Trade and Economy Fellow for Young Australians in International Affairs.