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The Airbnb Economy: A Battle Britain Must Win

ComputersWhen Democratic New York Senator, Liz Kruger was asked in an interview why she is against her constituents using Airbnb to rent out their apartments to make a little extra money, her response was both chilling and revealing. 

“If you live in an apartment building with people living to the right and the left, below and above, your right to let strangers stay in your home for money impacts all your neighbours. Did they sign off on the deal? It’s also very unlikely that it’s legal under your lease and co-op or condo bylaws. I would say, "I hope you know that you can be evicted from your home, even if you own it. Are you prepared to take that risk?"

This cocktail of patronising paternalism verging on outright authoritarianism is the force threatening the growth of peer to peer markets and what has become known as the Shared Economy. Kruger conjures up that old chestnut of the tenuous externality to justify her opposition to Airbnb. Moreover, instead of explaining why she believes it should be illegal to rent out your house for shorter periods of time, she simply says that her constituents should just deal with it and face the consequences if they defy her.

The rapidly expanding firms which constitute the Sharing Economy make use of some key principles. Firstly, what might once have been regarded as waste or unusable capacity can now be seen very much as potential capacity. For example, homeowners might want to rent out their driveways as parking space if there is a big nearby event causing congestion. Secondly, paying for access is often more convenient than paying for outright ownership. Borrowing or renting goods and services can enable consumers to access what they need for the specific time period which is suitable for them. Thirdly, better information delivers greater trust and higher quality; ranking providers for example gives consumers more confidence that what they are purchasing will be as they expected.

All throughout the world, peer to peer markets in industries as varied as transport, food, real estate and finance are developing new business models and matching demand with supply in often quite transformative ways. Many of these businesses will fail naturally but others are blazing a trail. The effects of this greater choice and competition can be seen with higher quality and lower prices. The sharing economy and the valuable new innovators it is fostering should be embraced.

However, the defenders of the status quo, the supporters of big, pushy government and the established market participants are fighting to construct new regulatory barriers to entry to stop the growth of these P2Ps. Amongst the developed Western economies, Britain stands out as not having yet succumbed to a bout of regulatory-led lashing out at these new businesses. Nevertheless, it is clear that British bureaucrats have now taken their cue from their American counterparts.  

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Adam Memon, Jan Zeber and Tim Knox - Friday 21st November 2014

Adam joined the Centre for Policy Studies as Head of Economic Research in January 2014. 

Adam joined the Centre for Policy Studies as Head of Economic Research in January 2014. 

Tim Knox was Director of the CPS from 2011-2017. Before he was Director, Tim was the Editor at the CPS - a position in which he was responsible for publishing papers by every Conservative leader since Mrs Thatcher as well as by hundreds of leading academics and opinion formers.