Lawmakers in Memphis, Tennessee are considering taxing and regulating peer-to-peer economy short-term housing services, such as Airbnb, in the name of protecting consumers from “rogue” homeowners choosing to put up tourists for the weekend.
Instead of protecting consumers from danger, unnecessary taxes and regulations protect campaign donors, such as the hotel industry, from having to compete against adaptable competitors, such as the growing short-term housing service industry.
For example, finding a place to stay in a new city is now as easy as a few taps on one’s smartphone, thanks to services such as Airbnb and VRBO, prominent examples of the growing peer-to-peer economy.
Created without government involvement, the peer-to-peer economy, also called the “sharing economy,” functions largely without the need of government regulations that are normally used to protect customers and businesses from the problems normally arising from a lack of information.
A good example is Airbnb, one of the nation’s most popular peer-to-peer short-term housing businesses. Airbnb hosts have the ability to check out how potential guests requesting to stay at their home have treated other hosts by looking at those hosts’ previous reviews. Similarly, guests can see how highly a host was rated by other guests who have stayed with them in the past.
Enabling consumers and providers to preview one another and rate their respective experiences after the transaction concludes makes for a much more efficient marketplace. Both parties’ feedback creates a self-regulating framework within which people have more information about providers and consumers of services, which means everyone can make better-informed decisions.
The proposed regulations under consideration by Memphis lawmakers demand the government receive a 3.5 percent cut of homeowners’ compensation, in addition to fees, for allowing a guest into their home for as few as one or two days. The argument made by the proponents of these mandates is government needs to have a piece of the peer-to-peer economy action to help protect the consumers and servicers involved from one another. In reality, the tax is simply a cash grab designed to help boost government coffers and an attempt to tilt consumers back toward traditional hotels.
Unlike the replacement of the dinosaurs with mammals, who quickly became Earth’s dominant species, industries today need not be wiped out by fair competition; all they have to do is employ government legislators and bureaucrats to do the work for them.
In 2013, Daniel Guttentag, a researcher at the University of Waterloo’s Department of Recreation and Leisure Studies, published a study examining how Airbnb and other peer-to-peer economy services work and their effects on the existing hotel industry.
Expanding on other researchers’ work on “disruptive product theory,” Guttentag wrote innovative companies such as Airbnb do not necessarily replace existing players in the economy. According to Guttentag, they can co-exist with existing products and services by growing consumers’ demand for services instead of taking over the demand for older service providers.
“A disruptive product will generally underperform with regards to the prevailing products’ key performance attributes, but will offer a distinct set of benefits, typically focused around being cheaper, more convenient, or simpler,” Guttentag wrote. “Consequently, the disruptive product appeals to the low-end of the market or creates a completely new market.”
Guttentag says Airbnb and similar peer-to-peer businesses need not appeal to everyone or serve the needs of all consumers. As he makes clear in his study, pleasing some consumers is more efficient than trying to be everything to all people.
“Airbnb will not appeal to everyone, some of its guests would not have otherwise stayed in traditional accommodation, and it will never rival the size of the entire traditional accommodation sector, but these characteristics of Airbnb are also completely consistent with disruptive innovation theory,” Guttentag wrote.
Instead of creating regulations and taxes to keep the economic dinosaurs alive, local and state governments should work to empower consumers to take charge so they can receive the services they want in the manner they want and from the businesses they like.
Allowing people to choose how they want to travel, whether that means staying at a hotel or a cozy Airbnb, is something everyone should embrace, especially the policymakers entrusted by the people to protect personal freedom and promote an efficient economy.
Jesse Hathaway is a policy advisor for budget and tax issues at The Heartland Institute.
