“Platform businesses” have been all the rage for years now. The general idea of a platform business is that it provides an opportunity for a buyer and a seller to meet and perform a transaction. Airbnb, Fiverr, and Uber are examples of such businesses.
On the one hand, platform businesses have been a godsend to people by making all sorts of services easily accessible at very low cost. But this benefit comes with a hidden cost, as all such things do. Critics have noted that quality can be eroded, performance standards undermined, and accountability and safety often ignored.
Take the example of Airbnb. I’m very grateful for this business, as it allows me to stay where I want in nearly any city around the world. I don’t have to deal with the high prices and often restrictive policies of hotels. But there are some downsides, as I was recently made aware by reading a recent BBC article.
The basic problem, as the article notes, is that Airbnb hosts have realized that they can make a great deal of money in a very short amount of time by renting out extra rooms or even whole houses to visitors. That may sound fine in theory, but in practice it creates problems: everyone wants a piece of the action, and this means that everyone wants to get into the short-term room rental game. When that happens, the overall supply of houses for sale or long-term lease goes down, and this means that costs go up.
Locals may suddenly get a notice from their landlord that they plan to convert their space to an Airbnb room. It’s simple economics: landlords have realized that they can make far more by renting short-term than by keeping a space occupied year-round with a local resident. In many cases, an Airbnb host can make more money in a few days than in an entire month if the space is under a long-term lease.
It may sound reasonable, but the problem is that some cities have housing shortages, and that means costs can skyrocket when someone is forced to look for another place to live. Sometimes, the landlord will simply raise the rent on a long-term tenant, as a way to take advantage of the increased number of options he may have. Renting is not always the panacea that it’s made out to be. Owning your own property has its merits, too. We would do well to remember this.
Berlin seems to have taken the lead in dealing with the realities of the new situation. Beginning on May 1 of this year, a new law called the Zweckentfremdungsverbot came into effect. It prevents owners from renting out entire houses; only individual rooms can be rented. The law also imposes a major fine for violations (up to 100,000 euros).
Critics, of course, will point to two arguments: (1) the new law is an indirect way to help the hotel industry; and (2) the government should not interfere in allegedly “natural” economic processes. That may sound fine in theory, but it is doubtful to be a sentiment shared by locals who are furious to be facing steadily mounting rents costs. Hotels also hate Airbnb for the simple reason that it has seriously cut into its profits. For decades—perhaps centuries—hotels were the only option available for most people who traveled. Now there are other options.
The same argument has been made in support of the platform business Uber. Some say that it is the natural outgrowth of the laws of supply and demand, and that no regulation should interfere with its workings. Taxi drivers who may have spent significant amounts of money and time to get licenses see the situation quite differently, of course. They point to the fact that Uber is a way for a few people to get rich while impoverishing a legitimate trade (the taxi service).
As I said earlier, I am a frequent user of Airbnb and have no plans to stop using it. I actually began using it only in response to hotel policies I thought were demeaning and inappropriate.
For example, some hotels I have stayed at felt the need to mandate restrictive policies on female guests that came to visit guests. In order to protect guests “safety,” these hotels argued, they needed to have female visitors sign in at the front desk, and would prevent them from staying overnight. I found these policies to be insulting and unnecessary.
Airbnb is driving up rents in many cities
Platform businesses are here to stay, like it or not. Every profession will be affected, whether you are an accountant, doctor, lawyer, banker, or whatever. With regard to Airbnb, the projections are that it will be doing over half a billion nightly bookings by 2020.
No one expects Uber or Fiverr to be going anywhere any time soon, despite the grumbling coming from some quarters. The reality is that we all have to adapt to the new landscape. No one who gets into an Uber vehicle feels guilty about hurting taxi drivers: cost trumps concern.
In the same way, no one who uses Fiverr to perform some service wrings his hands over the fact that he might be denying business to someone in his city. Even if he does think this way, the regret quickly vanishes once he realizes his cost savings.
All of us should be thinking about how these changes in the economic landscape will affect our employment and living situation. Adapting to the new changed landscape will mean the difference between survival and economic failure.