Don't Strangle AirBnb; Cut Its Competitors Some Slack!

If there is an unjustified asymmetry between bed and breakfasts and Airbnb rentals, why not relax regulations on the former?

Government is frequently a one-way ratchet whose grip grows ever tighter, never looser. The evidence for that premise, already abundant, continues to mount. Take the way Virginia's General Assembly has responded to Airbnb.

A bill to regulate short-term rentals, which mostly means Airbnb, has moved swiftly through the legislature. The measure would let localities create short-term rental registries and require "operators"—i.e., homeowners—to register not once, but every year. They also would have to get an ABC license if they want to serve alcohol to their guests.

The bill's patron, Tommy Norment, represents a tourism-heavy region and has a financial stake in two hotels. He also is co-chairman of the Senate Finance Committee and threatened opponents of the Airbnb bill with an even more Draconian proposal if it didn't pass: a budget amendment creating a state registry and imposing a $500 fine for every day an unregistered property was rented out. (Norment also was instrumental in derailing other legislation in last year's Assembly that took a much more favorable stance toward sharing-economy rentals.) Another measure this year, sponsored by state Sen. Bill Stanley, would have imposed a $10,000 fine on anyone who committed a short-term rental in a locality that forbids them.

The lodging industry supports tighter controls on Airbnb, for the obvious reason. As Del. Chris Peace (R-97th District) put it last year, "They want the government to protect their market share."

Not that the hotel industry would ever put it so baldly. Instead, supporters of Norment's bill make a different argument. Last year Eric Terry, president of the Virginia Restaurant, Lodging & Travel Association, told the Washington Post: "We welcome Airbnb, but we just think they should be subject to the same requirements that a bed-and-breakfast or a hotel has to go through." A few days ago he told the Richmond Times-Dispatch, "It really is about a level playing field."

That invites two questions. First: A "level playing field" sounds nice, but is it necessary? We don't require a level playing field between, say, TruGreen, which has almost $1 billion in annual revenue, and the guy who mows your lawn for 50 bucks and a couple of beers. Or between Major League Baseball and the local little league, even though both take your money (and as some parents will attest, lots of it). Yet the hotel industry seems to be arguing that if legitimate grounds exist for a level playing field between certain competitors in one market, then nothing else will do but a level playing field among all competitors in every market. Hardly a self-evident truth.

One proposal in the Assembly this year, favored by Airbnb, would have allowed short-term rentals of up to 21 days a year without regulation. That would seem to make more sense than insisting that someone who rents out a room for a special event now and then ought to be treated as the same as the $34 billion Marriott corporation.

Granted, a broad variety of property owners fills the spectrum between those two poles. Bed-and-breakfast owners in particular have been nursing a resentment over the asymmetric treatment they receive. As one of them told the Times-Dispatch, "Legal B&Bs have to comply with federal, state and local laws… An Airbnb facility, right now, has to comply with nothing." (N.b., A "facility" means a person's home.)

This brings up the second question, and gets to the ratchet effect: If there is an unjustified asymmetry between B&Bs and Airbnb rentals, why impose onerous regulations on the latter? Why not, instead, relax regulations on the former?

According to a story last year in the Washington Post, one B&B owner "spent nearly six months getting permits from city hall, securing an alcohol license for wine and cheese nights, and even submitting floor plans to figure out the proper location for smoke detectors." Six months—and an alcohol license? Seriously, now.

If her experience is anything like typical, then the B&B industry in Virginia needs help getting the government's boot off its neck. And this is all the more true because the B&B industry is particularly subject to market self-correction, thanks to the rise of consumer-review portals like Yelp. If you had a bad experience at a B&B a couple of decades ago, you might be able to warn a few friends. Today you can warn the entire planet.

Then again, the B&B industry (or at least parts of it) might like the heavy regulation—for the same reason taxi companies like medallion regimes: Making it hard for people to enter the market means fewer competitors and more business for the incumbents.

For everyone else, it might be worth asking: Why does the knee-jerk response to economic innovations always seem to involve tying them down with rules applied to older business models—instead of cutting the latter some slack?

This column originally appeared at the Richmond Times-Dispatch.