Ask a bunch of New Yorkers where they spend their money: apartments, cars, vacation lodgings, maybe designer handbags . In the new American “sharing economy,” these can all be enjoyed at a fraction of their normal cost. Just not if you’re a New Yorker.
Bloomberg News’s Aki Ito and Jeff Kearns recently wrote about the increasing number of websites where people rent out their stuff. Going away for the weekend? Why not rent out your apartment? Not using your car much? Let someone else. Services like Airbnb, RelayRides and DogVacay are on track to account for “at least a single-digit percentage” of GDP in five years, said Arun Sundararajan, a professor at the Stern School of Business. In America’s $16 trillion economy, that’s enough to make the $2 billion currently invested in such startups seem puny.
But so far New York laws have blocked some of the most popular services from the very people who would benefit most. The median rent for a two-bedroom apartment in Manhattan is $4,800, and the city’s car owners pay some of the highest rates in the country for insurance and parking. Yet in 2013 New York laws made it one of the toughest places to share those costs.
Here’s the problem: most tax and safety rules were designed for industries that don’t operate on a small scale: hotel chains, rental car companies with massive fleets, brick-and-mortar retailers. These regulations are ill equipped to deal with shared consumption, or micro-renting, or whatever you want to call it.
Is the couple in Williamsburg who rents out their apartment for the week to pay for a trip to Montreal operating an illegal hotel? The City of New York says yes. Should a 22-year-old who wants to make some extra cash picking up passengers using the SideCar app first have to shell out $1 million for a New York City taxi medallion? It appears so.
It’s OK to rent out your car for the day using a service called Relayrides if you live in 49 U.S. states, but the state of New York says the company’s $1 million liability insurance isn’t approved and could leave some car owners footing the bill. Relayrides, backed by funding from General Motors and Google, withdrew from the New York market entirely in May (though options abound if you cross the river to New Jersey).
In the name of consumer protection, New York is leaving consumers hurting. The average price of an NYC hotel room after taxes is $350. For that rate on Airbnb, you can get a 2-bedroom penthouse apartment in Greenwich Village with an outdoor patio and working fireplace. Similarly, while a Ford Focus in Manhattan might set you back $150 a day, Rideshare users can get a BMW for $100.
While some neighbors hate Airbnb, and renters may occasionally get a raw deal, for the vast majority of transactions the only parties at risk are the entrenched hotel and car-service industries.
To be fair, these new rental services have their bad actors -- people who use the websites specifically to skirt taxes and regulations. New York state’s 40 top-grossing Airbnb hosts each brought in more than $400,000 over three years, according to data published by the New York Times. That fairly puts them in the “illegal hotel” category. Similarly, some RelayRides owners make $1,000 a month renting out a car. That’s a business.
For now, those are the exceptions, not the rule. Almost half of Airbnb hosts are middle class, make less than $72,000 a year, and 87 percent of hosts are supplementing their income by renting out their primary residence, not an investment property or pied-a-terre. While a few people have been swindled, cases are rare and largely covered by Airbnb's $1 million coverage plan.
The sharing economy helps middle-income people live beyond their means -- or rather expands what falls within their means -- by putting idle assets to use. That’s pretty much the definition of increasing economic productivity. Just as governments chose to look the other way over Internet sales tax in the murky days when e-commerce was an unproven novelty, states like California are now giving the sharing economy a little room to develop.
With emerging shared-economy services -- whether it’s a small-business investment through Kickstarter or lodging rentals through Airbnb -- there's a certain amount of buyer-and-seller beware. The popularity of these startups show that consumers are willing to accept the risk. Besides, despite a massive web of regulations, not every “legit” hotel in Manhattan is the Ritz.