The Star Early Edition

A well-meaning law that failed to hit the target

- 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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