Uber and Airbnb’s overdue comeuppance in NY City: Better late than never

New York City’s new regulations for the popular services Uber and Airbnb are way overdue. These so-called “sharing economy” companies broke on the scene about a decade ago, claiming they were good for consumers and provided flexible employment in a down economy.

Again and again, when fending off criticism of their disruptive, rules-busting business model, they deflected the critics by portraying themselves as the blue helmets of Silicon Valley, coming to the rescue.

No question, these companies initially added something intriguing to the urban matrix. Uber provided a transportation alternative that was welcomed by many, given the poor quality of public transportation and the inadequate supply and quality of taxi service. Airbnb provided a way for struggling homeowners and tenants to rent a spare room in their dwelling — or, often, a full apartment — earning extra income, and giving tourists who wanted a more home-like atmosphere while on vacation another option.

But over time both of these private corporations, in typical Silicon Valley fashion, became greedy in their pursuit of market monopolies. They have not worked well enough with cities to enact rules and regulations that would minimize the increasingly obvious downsides of their services.

The downsides have been many. With so many people using “ridesharing” (which is a misnomer; they’re actually just competing for-hire vehicle services), an influx of new cars on city streets has led to increases in traffic congestion. With Uber and Lyft heavily subsidizing their services in order to gain market share — passengers pay only about half the cost of each ride, according to various transportation experts — that has resulted in a decline in the use of public transportation in nearly all major cities, including New York, draining away the revenue needed to sustain mass transit.

As a result of these subsidies, both companies are massively unprofitable — Uber’s annual losses surged 61% in 2017 to $4.5 billion.

While originally Uber held out promise as a flexible form of viable part-time employment, increasingly that also has proven to be a dead end for many. A study by Stanford University researchers found that the median profit for ridesharing drivers is no more than $10 per hour once you subtract their considerable costs for driving their own vehicle. The income crunch is especially tough in New York City, where the market is heavily regulated by local government and almost all drivers are full-timers.

There are so many ridesharing cars — 80,000 in New York, swamping the 13,000 yellow taxis — that there is not enough work for all of the drivers, as well as those working traditional taxis and limousines. So drivers wait a long time between fares and are driving much longer hours to earn less income. This deterioration in economic opportunity was one of the reasons cited by several of the six livery drivers in New York City who committed suicide in recent months.

For all these reasons, it is fitting that the New York City Council has put an up-to-a-year-long cap on the number of new ridesharing vehicles and created a minimum wage for drivers. But the devil is in the details: the proposed hourly minimum does not take into account the drivers’ expenses for using their own car. This loophole could undermine the worthy policy goals of the new law.

It is unfortunate that we have failed to learn from the past. During the Great Depression, large numbers of under-employed men jumped into whatever vehicles were available to offer rides-for-hire. Soon the streets were clogged, and unregulated drivers got into accidents and engaged in criminal activities. Local officials and media like the New York Times demanded regulation. This led to limits on the number of taxis within a city and the launch of the much-reviled taxi medallion system.

Like Yogi Berra said, today it’s déjà vu all over again. Now is the time for a new, modern regulatory regime for the digital age. Just as in the past, New York City authorities are right to step in and harness ridesharing for the public good.

Airbnb also started out as a good idea, but quickly real estate professionals realized they could make a lot more profit by renting short term to tourists than longer term to local residents. Many of them have violated local laws and run illegal “hotels.” As Airbnb spread that began to eat away at the available housing stock, contributing to housing shortages and affordability crises in city after city.

Airbnb easily could identify those professional host law-breakers and evict them from its platform. But it has refused because it makes so much money from them. One study found that the top 10% of professional “hosts” earned a staggering 48% of all revenue; the top 20% earned 68%. For the regulators, it has proven to be impossible to regulate Airbnb activity without detailed data telling them which hosts are renting, for how many nights and how much they are charging per night.

So it’s positive that New York City recently passed a law that requires Airbnb and other services to provide the necessary information. Failure to provide the info now will result in a minimum $1,500 fine for each listing. Enforcement may not be easy with such an untrustworthy company, but it’s a good start.

The lesson is that limited valuable commodities such as housing stock and city streets need to be treated like precious public utilities. I still believe that, with the right regulations, it is possible to return these services to their original positive roots. New York City has taken a step forward toward making this a reality, and hopefully launched a national model.