A well-meaning law that failed to hit the target
AYEAR AGO in June 2016, I wrote an oped for Tagesspiegel in which I predicted that a new Berlin law, designed to curtail the runaway growth of Airbnb home-renting, would fail to accomplish its goal. That law has been in place for a year, and now we have new numbers about Airbnb’s growth in Berlin. Unfortunately, the law has failed massively, as I predicted.
The reason is simple: it was designed by government officials who were well-meaning but did not understand that the old ways of regulating these digital companies will not work.
Based in Silicon Valley and valued at $31 billion (R404.6bn), Airbnb uses online app- and web-based technologies to rent out vacant apartments and homes to tourists. It is popular with many travellers, and these online transactions are very hard to track, using conventional means.
That has allowed landlords and professional real estate operatives to infiltrate the Airbnb platform, where they can triple their income by renting to tourists instead of local people.
They evict tenants and turn their apartments into Airbnb hotels.
Some professional hosts control dozens of properties; in Mitte, a government study found that in one building on Wilhelmstrasse, 280 out of 300 apartments were rented to short-stay tourists.
That reduces the housing available for local residents, driving rents up.
Airbnb could easily identify those professional hosts who are breaking the law and kick them off its platform.
But it makes too much money from them, and so has refused. This is a company that is willfully helping many hosts to break the law.
So the Berlin Senate passed a law to remove the professionals.
The law, which went into effect in May 2016, requires that Airbnb’s hosts actually live in their residence, and that those hosts could only rent out a spare room, not the whole apartment, which in theory cuts out the professionals.
Hosts also must register with the city, and can be fined up to €100 000 (R1.5 million) for violations.
Yet since the law was implemented, Airbnb growth has exploded. According to the website Inside Airbnb, the number of listings in Berlin has increased by 54 percent, with more than 7 200 new listings for a total of 20 576 – the most ever in Berlin.
But even more ominous, the number of whole homes/apartments listed – which the law was specifically designed to curtail – has increased by 45 percent to 10 289 listings.
So 50 percent of Airbnb listings are still for entire homes and apartments.
Stephan von Dassel, the well-intentioned mayor of Berlin-Mitte, says that the legal process of cracking down on the criminals is slow, so he expects to see only 20 to 30 convictions against Airbnb hosts this year.
He also says about 1 500 cases are in process. But in the meantime, thousands more listings have joined the illegal activity. Berlin is rapidly losing ground. It was predictable that the law would fail, because it replicated ineffective regulations from other cities, including in San Francisco where I live.
Impossible to regulate
Like these other cities, Berlin is learning a hard lesson: it is virtually impossible to monitor or regulate this commercial activity unless regulators get detailed data from Airbnb telling them which hosts are renting, for how many nights and how much they are charging per night.
These data are also important for assessing how much unpaid taxes are owed, since traditional hotels pay an occupancy tax, which provides important revenue for local governments.
The Berlin law does require Airbnb to provide some data, but the requirement is not aggressive enough and clearly hasn’t worked.
As in New York City, the company has refused to provide complete data because it says its hosts have a “right to privacy.”
But this contorted thinking overturns established commercial law. Once you turn your home or apartment into a commercial enterprise, you forfeit some of your privacy.
If you start a “bed and breakfast” in Germany, you have to register that business and fill out paperwork. Why should it be different just because the transactions are conducted over the Internet?
What regulations will effectively rein in Airbnb, remove the professionals and allow regular people to earn some extra income?
First, just like any business that wants to operate in Berlin, Airbnb should have to obtain a business permit. To receive that permit, Airbnb must agree to:
1. Provide the complete data set (hosts, number of rental nights, nightly rates) that Berlin needs to enforce regulations and taxation.
2. Require that Airbnb only list on its website those hosts that are registered and following the law. If Airbnb lists any illegal hosts, the company would be fined for each violation.
3. Require Airbnb to pay the same occupancy taxes as regular hotels, and use the provided data to calculate the amount of tax owed.
These three requirements would put the responsibility on the company, instead of just on individual hosts.
Any online platform that knowingly facilitates criminal activity should itself be treated as a criminal enterprise.
In the digital age, cities and nations must develop the tools to prevent predatory, internet-based companies from making a mockery of regulations. Various countries have shown that it is technologically possible to protect one’s “digital borders,” and shut out companies like Google.
If Airbnb or any other company refuses to follow the law, it should be “digitally evicted” from the privilege of doing business in Germany. With Airbnb gone, a replacement company will surely arise that provides the same service, yet is willing to follow the law.
Steven Hill is a journalist and author of the recently published book Die Startup Illusion: Wie die Internet-Ökonomie unseren Sozialstaat ruiniert (www.StartupIllusion.com). Find him at www.StevenHill.com and @StevenHIll1776. This article initially appeared on The Globalist. Follow The Globalist on Twitter: @theglobalist