Airbnb brings sharing economy under the microscope

The home-sharing site learns the hard way that it can't assume San Francisco supervisors won't change their minds -- even after they passed a law legalizing short-term rentals.

Dara Kerr Former senior reporter
Dara Kerr was a senior reporter for CNET covering the on-demand economy and tech culture. She grew up in Colorado, went to school in New York City and can never remember how to pronounce gif.
Dara Kerr
5 min read

San Francisco lawmakers are rethinking how to regulate short-term rentals, like those promoted on Airbnb. Margarethe Wichert/Getty Images

The sharing economy is hitting a few roadblocks.

The latest example: Airbnb and San Francisco. Last October, the city became one of the first in the world to legalize short-term rentals, the kind Airbnb promotes on its site.

It took two years for San Francisco to achieve that milestone, as legislators sat through countless meetings and forums before amending citywide zoning laws that now let people rent their homes or rooms for up to 90 days per calendar year.

That law as it stands might not last, however. In reaction to San Francisco's worsening housing crunch, the city's board of supervisors is considering two proposed amendments on Tuesday that could change these rules.

"We need a fair, effective system for regulating short-term rentals," said Conor Johnston, legislative aide for the board's president, London Breed. "It is a complicated topic in a largely new industry."

Airbnb is just one of dozens of companies to describe itself as part of the sharing economy -- the idea of using the Internet to create person-to-person marketplaces. Some services let people swap bicycles, tools and musical instruments. Others, like Airbnb, let people sublet their rooms, or their entire homes when they're not around. While such companies promise convenience or an easy way to make a buck, they can also muddy the issues around insurance, consumer safety and local taxes.

Lawmakers in New York, California and Europe are questioning whether people should be able to offer their apartments to strangers for a few days or weeks, or, with ride-hailing services like Uber and Lyft, to act as impromptu cab drivers. Airbnb has been blamed for exacerbating the already tight housing shortage in San Francisco, while Uber has been accused of waging unfair competition with cabbies.

Airbnb didn't return repeated requests for comment.

"This is relatively a new technology," said San Francisco Supervisor Norman Yee. "It's pretty evident that it's benefited many individuals, but it's also hurt other individuals."

San Francisco law

It was big news last year when San Francisco Mayor Ed Lee signed a bill into law legalizing home-stays through Airbnb. Under the new law, homeowners and renters were allowed to lease their accommodations up to 90 days per calendar year; and those hosts present during home-stays could lease rooms year round. The law also ruled that all Airbnb hosts must sign on to a city registry, collect taxes and carry liability insurance.

A group of Airbnb proponents gathered in front of City Hall in June to say San Francisco's board of supervisors should keep the short-term rental law as is. Dara Kerr/CNET

But within months of the law's passage, housing advocates and others were saying it didn't do enough to protect renters and landlords and to preserve low-income housing.

By the spring, two separate amendments had been proposed to tighten the law; and last week, Share Better San Francisco turned in nearly 16,000 signatures for a November ballot measure that also aims to curtail the bill.

"Our measure is effectively intended to provide the tools the city says it needs to enforce the law," said Dale Carlson, co-founder of Share Better San Francisco, a coalition of politicians, labor unions, neighborhood groups, housing advocates and others. "There's got to be some limits on [Airbnb] because we're losing too many housing units that are being converted into hotel rooms."

Not everyone agrees, however. "Many residents of San Francisco rely on short-term rental income from extra rooms in their homes," said San Francisco Supervisor Scott Wiener. "Particularly given how expensive it is to live in San Francisco, I won't support any legislation that undermines their ability to earn that income."

It's now up to San Francisco supervisors to agree on how to best modify the law. One of the amendments, introduced by Lee and Supervisor Mark Farrell, would impose a 120-day limit per year on residents renting out their homes, whether the hosts were present or not. It would also create an Office of Short-Term Rental Administration and Enforcement to impose the law.

The other amendment, introduced by Supervisor David Campos, is much stricter. Campos wants to put a 60-day limit on Airbnb rentals per calendar year, while also requiring Airbnb to file quarterly reports. The coalition's November ballot measure is similar to Campos' amendment, but has a 75-day rental cap.

"What we are trying to do is strike the right balance," said Campos. "We support short-term rentals in San Francisco, but what we are trying to prohibit and regulate is the commercial aspect. It's taking valuable housing out of the market."

Big business breeds alternatives

Airbnb, Uber and other sharing-economy companies represent the next wave of big business. Currently Airbnb, valued at $24 billion, and Uber, valued at $41.2 billion, are two of the three highest-valued venture-backed companies in the world.

Consulting firm PricewaterhouseCoopers estimates that global revenue across all sharing-economy companies, which is roughly $15 billion today, will increase to around $335 billion by 2025. But those estimates assume these companies can stick to their current business models, which often rely on independent contractors rather than employees, and tend to skirt insurance and other overhead costs. An increase in regulatory oversight could add to sharing-economy companies' costs and cut their profit.

A handful of Airbnb-like startups have come up with ways to get around some regulations. They can do that because their business models don't rely on money being exchanged -- meaning hosts aren't seen as turning residential apartments into temporary hotels.

Couchsurfing, for example, lets guests crash on people's couches for free. HomeExchange connects people who want to swap homes on designated dates. And Nightswapping lets people host guests in order to gain free stays in other places around the world.

Nightswapping was founded in France in 2012. It now has more than 90,000 members in more than 160 countries. The idea: users can rack up nights by hosting people in their own homes. If users can't host, they can pay between $7 and $49, depending on the property, for a home-stay. The hosts don't get that money, however. Nightswapping keeps it as a cost for running the site.

"The users who use our site never exchange money," said Nightswapping spokesman Joshua Hibbard. "With us, it's just about sharing, no one is making a profit."

San Francisco's board of supervisors is scheduled to vote Tuesday on the amendments to the Airbnb law, but it's possible the vote could be delayed if the supervisors decide to wait and see what voters think of the ballot measure in November.