June 15, 2013 • No 312 | Archives | Search QL | Subscribe



Seeking Permission to Rent What's Yours: Airbnb vs. Entrenched Interests
by Larry Deck

“Disruptive” has become a buzzword, but it does aptly describe the effects that the Internet and social media are having on established markets and legal systems. And when it reaches the point that writers for the Toronto Star begin to question certain antique licensing and regulatory regimes, you know that something momentous is happening.

“Renting out a private parking spot in Toronto is illegal” read the headline above a story alerting readers to a curious legal situation that technically exposes private citizens who rent out their own parking spaces to fines of up to $25,000 from the city. The article quotes Elizabeth Glibbery, acting director of investigations at the city's municipal licensing and standards branch, as saying that no one has “recently” run afoul of this law as it applies to parking, and in any case investigations are only triggered by complaints. But renting parking spots online through Craigslist, Kijiji and special-purpose sites like parkatmyhouse.com is increasingly popular in Toronto, so someone risks hitting the negative jackpot.

The story is remarkable for its tone of incredulity. Everyone it quotes seems to agree that the law is absurd. A criminology professor remarks on the deleterious effect of having obscure, irrelevant and unenforced laws on the books. Not even Glibbery defends it. Who would? It's illegal to rent a parking space? It's enough to make a libertarian say, “Welcome to my world, Toronto Star!”

It's been a long time coming, but web-enabled businesses have begun to challenge entrenched interests that have enjoyed the rents from licensing and regulatory regimes for too long. People with goods and services to sell, from car rides to parking spaces, are finding their buyers online. They're bypassing the rules that have kept the barriers to entry to these markets too high, offering cheaper and no less reliable alternatives, and in many cases, that provokes the established players to cry foul. But the state does not really have the power to clamp down on these web-enabled transactions, and the widespread popularity of buying and selling online (crucially among the classes most likely to vote) means that when the state tries to clamp down, it now exposes itself to ridicule.

Which brings us to a similar story here in Quebec.

In May, Tourisme Quebec announced that it was investigating 2,000 people for renting their homes without a permit. Many of these miscreants unsurprisingly made contact with their renters through websites like Airbnb and Craigslist.

It's hard to avoid focusing on the common element of these two stories: the way the “disruptive technology” of the web and social media has drastically lowered the transaction costs involved in getting sellers of things like temporary accommodation and parking in touch with people who want to buy those things. But it's true that there's a difference: in the case of renting parking spaces, it's hard to see how the law makes any sense at all; but in the case of hotels, there is, after all, some reason to think that regulation is necessary.


“Regulations are written for (and often by) the richer established interests in any given market, in order to protect themselves from competition by making it harder to enter the market in the first place.”


A more “moderate observer” than myself might say that the online reviews typically associated with these marketplaces also do away with one of the only good reasons for the old regulatory regimes by providing fairly reliable information about the sellers' reputations. The moderate will point out that the regulatory regime did, after all, serve a purpose: it addressed the “market failure” of the high cost of, say, learning the reputation of hotels in unfamiliar places, and thus it more or less protected consumers from hotels that failed to meet someone's idea of minimal hygiene or fire safety.

Whose idea? An innocent or a progressive type might answer “our idea” or “the idea of any right-thinking person.” A more cynical person might say “the idea of the government regulators.” But the astute answer, at least in jurisdictions like our own, is: “the idea of the established businesspeople themselves.”

Regulations are written for (and often by) the richer established interests in any given market, in order to protect themselves from competition by making it harder to enter the market in the first place. (It's true that they also often provide some revenue for the government, a happy coincidence depending on what makes you happy.) It also has the grimly ironic consequence that the established players can then accuse anyone who bypasses the regulations of enjoying an “unfair advantage” in a marketplace that should only be to their advantage.

It also tends to turn the poorest victims of the regime—the ones who have paid the greatest portion of their wealth for the privilege of participating legally and who now have the most to lose—into its most jealous guardians.

The spokesperson of Montreal's Bed and Breakfast Association, for instance, is concerned that the government has not done enough, quickly enough, to stop what he calls the “black market” in short-term accommodation. Airbnb is no doubt taking a larger percentage out of his profits than it is taking out of the Hilton's. If anyone suffers, it will be the little guys like him. And if the big guys start to suffer, they'll lay off the maids and cooks first.

So people can justifiably worry that the people most disrupted by technologies like Airbnb will be the poor. The happy difference is that now, before they decide that the solution is to shore up the superannuated protections put in place by and for the rich, they can consider how much they themselves have enjoyed the convenience and economy of online shopping, and can begin, finally, to consider a part of what Bastiat called “the unseen”: the cost of rent-seeking to everyone.

And maybe, just maybe, folks will start to wonder if voluntary exchanges should be legal even when people don't use the web to arrange the transaction.


Larry Deck is a librarian who lives in Montreal.


From the same author

Indecision 2012, Quebec Version: Is Cleaner Government Possible?
(no 302 – August 15, 2012)

The Housing Hustle: A Review of Matthew Yglesias's The Rent Is Too Damn High
(no 301 – June 15, 2012)

Is "Capitalism" Worth Saving? A Conversation
(no 300 – May 15, 2012)

Student "Strike" Is Losing Steam
(no 299 – April 15, 2012)

Students of the Province, Unite! (To Oppose Tuition Hikes)
(no 297 – February 15, 2012)



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