When the Hotel Industry Places a Hit on Airbnb, Politicians Happily Take the Contract

Government is a weapon old industries use to squeeze out entrepreneurs.

New York officials are on the job, protecting the world from the likes of Hank Freid and Tatiana Cames by slapping the two with a combined total of $17,000 in fines.

What threat to life, liberty, and property did this dastardly duo pose?

They were renting rooms to willing customers, the bastards. Fried and Cames were slapped for violating laws prohibiting apartment owners from renting rooms for less than 30 days if they're not living on the premises, and a further law passed last year that banned advertising such rentals. It's a direct strike at innovative home-sharing services like Airbnb and the people who use them that parallels similar attacks around the country.

"The law signed today will provide vital protections for New York tenants and help prevent the continued proliferation of illegal, unregulated hotels, and we will defend it," New York Attorney General Eric Schneiderman (D) trumpeted last October.

Maybe I'm the suspicious type, but I think those "vital protections" Schneiderman refers to are against competition to the established old-school hotel industry. Just last summer, the Office of the New York State Comptroller fretted that the hotel business in New York City wasn't doing as well as hoped. "Despite impressive gains, the average room rate (i.e., the average cost of renting a hotel room) has not yet reached its prerecession level" and, in fact, "room rates declined slightly in 2015." This bums officials out, because "New York City collected a record $1.8 billion in tax revenue from the hotel industry in fiscal year 2015" and officials want to keep scooping up that revenue and maintain close, personal friendships with the people who generate that kind of cash.

Tellingly, the comptroller's report cautioned that "The growth of nontraditional competitors, such as Airbnb, that match people looking for lodging with owners or renters of private apartments, presents a challenge for the industry."

You don't say.

New York's home-sharing restrictions "should be a big boost in the arm for the business, certainly in terms of the pricing," Mike Barnello, chief executive of LaSalle Hotel Properties, told shareholders in a conference call last October. "You got to thank all of our friends at AHLA [American Hotel and Lodging Association] for working as hard as they have been to push legislation across the country really in all these key cities." He added, "registration and limitations would go a long way towards curbing the hosts who are actually operating basically illegal hotels."

Obviously, New York officials aren't alone in preferring their crony capitalist pals over innovative services and budding entrepreneurs. Last year, Chicago was one of those "key cities" that adopted restrictions on home-sharing that the Chicago Tribune described as "dizzyingly complex, setting various kinds of limits and ways to get around those limits for different types of residences in neighborhoods around the city."

"If the guiding principle were to protect the community from danger, there would have been no need to include a 4 percent tax on top of one of the highest hotel taxes in the country," added Illinois Policy. "Mayor Rahm Emanuel and the aldermen saw a potential cash cow and didn't hesitate to throw visitors under the bus to protect the hotel industry."

The measure also allows for warrantless searches of rental properties—often people's homes, remember—by city officials.

The Chicago law has been targeted in lawsuits by Keep Chicago Livable, an organization of Airbnb hosts, and in a separate effort by Arizona's Goldwater Institute with the Chicago-based Liberty Justice Center.

"Chicagoans should not have to ask the government for permission to have sleepovers in their own homes," said attorney Shorge Kenneth Sato, representing Keep Chicago Livable. No, not even if the guests offer their hosts money instead of a plant or a bottle of wine.

Such shenanigans aren't confined to comically corrupt jurisdictions like Chicago and New York. In 2015, Sunny Santa Monica, California passed its own law outlawing home and apartment rentals of less than 30 days. The rules wiped out an estimated 80 percent of listings in the community, leaving old-school hotels with less competition to worry about.

That's after "Responsible Leadership for a Better Tomorrow, a political action committee headed by Councilmember Terry O'Day and largely backed by hotel owners and prospective hotel builders, spent $95,307 on the council race' more than any other outside spenders," according to the Santa Monica Daily Press. Tenant advocates, who think they can lower rents by choking off a competing use of properties, also spent heavily.

Local officials subsequently went after rental owners with criminal charges. They successfully prosecuted Scott Shatford last summer for operating a business without a license and failing to comply with citations—or for trying to make a living by dealing with willing customers, as other might put it. Shatford has "since left Santa Monica for the more Airbnb-friendly city of Denver, Colorado," reports Reason's Zach Weissmuller, who has his story here.

Airbnb isn't alone in upsetting traditionally cozy relationships between old industries and politicians. When Austin put a high-profile squeeze on Uber and Lyft last year with voter-approved regulations on ride-sharing services, city residents may have thought they were making a populist strike against evil corporations, but they were just whacking upstart businesses on behalf of older competitors. City councilmember Ann Kitchen, who led the charge for the regulations, was a major recipient of taxi industry largesse.

"Overall, Kitchen, a former state representative, appears to have received more campaign cash from taxi companies than any other council member who was elected last year," reported Austin Inno.

That looks an awful lot like a hit, paid for in advance.

That's exactly the analogy that Reason's own Nick Gillespie used in 2014 when he wrote "The government is a hit man" about growing efforts by government allies of established firms to hobble innovative new operations. "Market entrepreneurs make their money by offering customers a good or new service at a good or new price. Political entrepreneurs make their money the old-fashioned way: they use the government to rig markets and kneecap real and potential competitors."

Finding a way to kneecap government officials—their power at least–in return might be the only way to prevent them from rigging the system to favor their buddies. Until then, politicians will continue to stroke their friends and conspire against innovators, entrepreneurs, and the great many people who benefit from a dynamic world.

Check out Reason TV's "Santa Monica Evicts Airbnb: The War on Homesharing" below: