Local Government Blog Essay

Citybnb: Has the Time Come for Homegrown Alternatives to Short-Term Rental Platforms?

Conflicts between local governments and short-term rental platforms like Airbnb are growing, and in some cases getting ugly.  Platform critics point to studies suggesting they pull long-term rental units off the market, reducing supply and driving up rents.  To date, debates over short-term rentals have led to relatively similar regulations across the country:  registration of hosts, taxes often comparable to hotel rates, limits on the total nights a residence can be rented in a year (often 90, sometimes less), and in some cases basic inspection requirements.

But local governments do not simply impose and enforce regulations.  They also provide critical infrastructure and services, such as education, water, public transportation, and police and fire protection.  Cities also often replicate successful innovations, such as the bike-share programs that are now ubiquitous in major cities.  Given this history, it is surprising that state or local governments do not appear to be considering a potential complement to their regulatory responses to short-term rentals:  either developing a municipal short-term rental platform or working with a local non-profit to develop such a platform.  In contrast with the short-term rental sector, transportation network companies (TNCs) like Uber and Lyft have generated some local innovations, including home-grown alternative platforms.  Some cities have enlisted the same digital technology behind sharing economy platforms to develop “on demand” public transportation networks.  Devising a platform for short-term rentals would be no more difficult technically than designing a local TNC platform, which requires the real-time matching of drivers and passengers.

A municipal short-term rental platform, developed either by a single city, a region or state, or a group of cities, offers multiple potential benefits.  First, governments would have direct access to the rich data they now struggle to wrest from platforms.  Second, service charges of as much as 20%, which, in most cases, flow out of the jurisdiction in which a rental occurs, could instead be captured by the local government.  While some of this would be necessary to operate the platform, a significant share of it, in addition to any local tax, could be directed towards local priorities.

Cities seek access to the data held by companies like Airbnb to enforce the law and achieve their stated regulatory goals, including addressing the effects of short-term rental platforms on long-term housing supply and affordability.  This data, to the extent it can be obtained, can help local governments determine where rentals are located, how often a listing is rented, how long guests stay, and so on.  But platforms are often reluctant to be completely forthcoming.  Direct access to this data could both aid regulatory enforcement and enable cities to craft more responsive and effective zoning, economic development, and housing policies.  At the same time, users may have justifiable privacy concerns, either because they are prone to distrust government more than business or because of the potential for governments to combine multiple data sets in a way that generates greater privacy concerns.

Local governments also want to tax short-term rentals, in a manner that enables the activity to continue while capturing some of the economic value it generates.  There is a limit on how high a tax rate can go.  By operating their own platform and capturing the commission on short-term rentals a government can direct this additional revenue – beyond any tax receipts – towards local priorities such as affordable housing.  Or a share of this commission might be targeted towards the specific neighborhoods where short-term rentals are located, in an effort to address localized externalities (and perhaps increase support for short-term rentals, to the extent that is desirable).

There are challenges for such a proposal.  The most significant challenge, which is common to two-sided markets more generally, is how to reach adequate scale on both sides of the platform, garnering a significant number of host listings and of potential guests and generating network effects.  The former is likely easier as hosts are already able to list across platforms (such as Airbnb, HomeAway, and VRBO) and a city-operated or non-profit site might attract hosts by offering a lower commission than commercial sites or a streamlined registration process linked to any city or state registration system and taxation and inspection regimes.

As for attracting potential guests, this might prove more difficult given the ubiquity and significant market share of Airbnb and other firms.  The small number of existing local TNCs can benefit from repeat customers who live locally.  For short-term rentals the likely guest is an out-of-towner visiting for a one-off stay. Here is where there might be benefit from a number of local governments partnering to develop a platform, given the new platform greater visibility.  Local governments could also seek to direct traffic, through tourism advertising, visitor bureaus, and other sources, towards the local platform.   The local TNCs that have developed have also, in some cases, emphasized more socially conscious and locally oriented missions.  A municipal short-term rental platform might be able to similarly brand itself, attracting users looking for more sharing in their platforms.

A separate question is whether the potential legal liability (and headaches) operating a platform might generate for cities would be worth the benefits.  Cities may not want to be directly responsible for injuries or property damage incurred by hosts or guests.  For these reasons a platform that operates under the auspices of a separate local (or regional) non-profit or quasi-governmental agency might prove preferable.  An independent non-profit platform would have the added benefit of limiting tensions between the government’s roles as regulator and as platform operator. It might also help to address potential privacy concerns.

The challenges to such a platform are real, but the benefits could be significant, both in terms of keeping more of the profit from short-term rentals local and in enabling access to data that might inform a broader range of local policymaking.  Local governments still need to address the regulatory challenges – and any negative effects – posed by short-term rentals.  But they should also recognize the opportunity for more innovative responses that might enlist platform technology in the service of a broader set of urban policies, including land-use planning, housing affordability, and neighborhood economic development.