A well-mean­ing law that failed to hit the tar­get

The Star Early Edition - - OPINION & ANALYSIS - Steven Hill

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

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