City Regulators, Airbnb and the Road From Serfdom

In the same week that the city of Kansas City, Missouri, published its proposed new rules to regulate Airbnb, I just happened to be re-reading F.A. Hayek’s classic, The Road to Serfdom. My guess is that Hayek would not smile on the proposed rules. Airbnb was leading us on the road from serfdom. Kansas City would have us hang a You-ee.

About 10 years ago in San Francisco, in response to the housing crunch in that city, a couple of young techies had a brainstorm. To offset the price of their loft apartment, they would put some air mattresses on the floor and turn the loft into a bed and breakfast. So was born AirBed & Breakfast.

In much the way Uber matches drivers with passengers, Airbnb matches people who need space with those who have space to spare. The need was there. The Airbnb online marketplace now lists more than 3 million units spread among nearly 200 countries.

For all their success, the entrepreneurs of the “sharing economy” face a conundrum: They and their Millennial pals know better than other Americans how life should be organized. Just ask them. When these people reach critical mass in a given city, they inevitably insist on imposing their wisdom on their fellow citizens. In no time at all, the creative class becomes the regulatory class. 

As a result, virtually every city in America insists on regulating Airbnb’s service. Although Airbnb has been operating here for at least six years without incident, the City of Kansas City, Mo. has finally gotten around to placing its own roadblocks on the highway to freedom.

If there is a “sharing economy” for regulators, Kansas City seems to have plucked its model from the listing “coercive.” To coerce, it helps first to scare. This the city does most convincingly. Its proposed regs open with this buzz-kill, “Currently, it is illegal to rent homes for short term rentals.” Illegal? OMG!

Having chilled the air, the city positions itself not a regulator but as a liberator. Its alleged goal is “to legalize short-term rentals.” If we were talking here about illegal aliens instead of illegal rentals, the city would be selling this gesture as “general amnesty.” That said, if our undocumented friends had to jump through as many hoops as Airbnb hosts will, they never would have left home.

The first roadblock is the application. Airbnb hosts “must submit” one. The second roadblock is the affidavit. If they occupy the units they plan to share, hosts must prove they have notified their neighbors. The third roadblock is the up-front $100 fee, and the fourth is the annual reregistration with the city. If hosts fail to follow these steps, the “platform provider,” Airbnb, cannot do business with them.

Hosts who do not live in the property they own face more roadblocks still. Condos are out; single-family structures only. At least 75 percent of the neighbors must sign an affidavit approving of the use. The first-year permit cost would be $259 if the neighbors approve and $596 if they do not.

Meanwhile, the city planning and development director must manage this whole enchilada, which includes evaluating applications, holding hearings for those applicants rejected, investigating complaints, and posting the lists. Last year, there were 460 Airbnb hosts in the city. The new laws would likely cut that number in half, maybe more. Their registration fees will not begin to cover the cost of the administrative apparatus needed to manage this dwindling economy.

City leaders, who have been salivating over the “creative class” since that class was created, run a major risk of alienating its members. Airbnb hosts dislike the new regs, as does the local tech community. Airbnb management hates them. Said an Airbnb spokesman, “This ordinance as currently written would create one of the most restrictive and burdensome short-term rental regulatory structures in the country.” One would expect no less from a one-party city.

For years, the Airbnb business flourished without any regulatory oversight. The hosts had a vested interest in recruiting good lodgers and keeping their neighbors happy. If the lodgers did cause problems, the neighbors did what they have always done. Address them.

Some years back, for instance, a group of diverse young men lived in the house next door to mine. From time to time, they would take to celebrating their diversity. As tolerant as the next guy, I intervened only when the celebrations came too often and got too loud.  

After one party, I bagged up the empty peach wine cooler bottles strewn along the street and the used condom or two, presented the bag to the neighbor on the lease, and explained that his party days were over. When he protested, I pointed out the four names above the doorbell and explained the neighborhood was zoned for one. Other than an outburst of shrieking after the Supreme Court ended the Florida vote count in 2000, he and his pals became good neighbors.

The real challenge is not pacifying neighbors. It is educating the creative class. For all the entrepreneurial energy of its members, they have not read their Hayek or their Bastiat or their Adam Smith. Few have a foundational understanding of the way free enterprise works. As a result, they keep electing people who promise to take their freedom away and are continually surprised when elected officials do just that.

These officials have been around forever, and their motives haven’t changed. Wrote Hayek 75 years ago, “To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm.”

Amen!