Cities and the sharing economy

Aided by advances in technology and online payment platforms, a fundamental change in our economy is underway.

This emerging economic model is commonly referred to as the sharing economy, collaborative consumption and the peer-to-peer economy. These platforms allow people with goods, services and skills to directly connect with individuals desiring access to these items without the need to go to a traditional business to facilitate the transaction. An advantage of this system is allowing owners of infrequently used assets to share with others and generate income to recoup a portion of the cost of their investment.

Examples of sharing economy businesses include Ebay, an online marketplace; Zipcar, a car-sharing service; VRBO, a vacation property rental service; Airbnb, a lodging marketplace; Uber and LYFT, ride-booking services. Announcements of new applications occur on a daily basis, including Scootaway, an app-based scooter rental startup in Columbia. 

So why should cities care about the growth of the sharing economy and its impacts. The answer is simple. Current regulatory systems are not designed to accommodate technology-based, peer-to-peer exchanges of goods, services and skills. This business model leads to a number of regulatory challenges and interesting questions. 

  • Is renting a residential unit or portion of the property on a daily basis using a platform such as Airbnb a violation of zoning regulations when the property is located in a single-family residential zone?
  • If it is a zoning violation, how do cities police this illegal practice when the transactions take place online and exact locations of the rental unit may not be disclosed in online advertising?
  • Is the income produced from peer-to-peer transactions, using a platform such as Airbnb and Uber, subject to income, sales and accommodation taxes?
  • Are accommodations furnished online in peer-to-peer exchanges subject to residential health and safety standards or commercial standards applied to traditional accommodations?
Ride-booking services also pose a unique set of challenges for local governments including safety and insurance issues.

Cities play a central role in deciding which sharing economy practices are adopted and which are rejected. City officials need to review their regulations and determine if they still make sense and whether they should be applied or modified to accommodate sharing economy applications.  

The National League of Cities recently conducted a survey in 30 of the largest cities in America to measure the sentiment and direction of the sharing economy.  

According to Brooks Rainwater, director of the City Solutions and Applied Research Center at NLC, "Overall, cities are finding that there is a way to strike a balance between promoting innovation, ensuring consumer safety and addressing existing industries’ [concerns]." Cities must evaluate issues such as the impact ride-booking services have on existing taxi and limousine services or the impact of Airbnb and VRBO have on traditional lodging facilities. 
As the shared economy upends traditional businesses and disrupts local regulatory environments while also fueling innovation and growth, the attitude toward these sharing businesses has also shifted in cities, according to the study.
"Specifically, ridesharing and homesharing companies that often came into cities with more of an aggressive posture are now starting to focus on working with the cities in terms of regulatory and taxing issues," Rainwater said. "We are hopeful the trend continues."
Last August, NLC formed the Sharing Economy Advisory Network composed of businesses, policy leaders and city officials to identify the regulatory challenges posed by the technologies that power the sharing economy. The Network is creating and promoting model solutions that can be adopted by cities as they work to resolve these challenges.
The Network is also identifying ways that cities can support and encourage the growth of new businesses in this space.
While there are emerging models in how cities address the new shared economy, Rainwater said the newness of the issue precludes long-term best practices. "There is no one-size-fits-all regulatory solution," he said.
Rainwater said the biggest issues cities face are consumer safety, tax fairness and the existing regulatory environment.
"What has been really great to see is that our cities are reacting rather quickly," he said, noting that the cities’ existing regulatory framework "doesn’t quite work the same way" in the shared economy.
"It is a balancing act, where cities are making sure they focus on public safety and taxes," he said.
April Rinne is a shared economy expert who often consults with public, private and social sectors and frequently writes about the issue on her website and in national publications. She emphasized that the sharing economy can be an "extremely useful, effective tool" to improve life in cities.
"It is a new lens by which we can unlock value in assets all around us," she said. In her article, "Rethinking Cities as a Sharing Platform," Rinne suggested city officials should first build awareness within government about the sharing economy then figure out what assets the city owns and might be able to share. Next, they need to take a hard look at their policies and figure out which regulations are in the way.
"This isn’t easy, but it’s where the real opportunity is," she said. "The sharing economy isn’t about unregulated activities; rather, it’s about developing appropriate regulations that maximize the (economic, environmental and social) benefits while balancing public needs."
Finally, officials need to get involved. Rinne said city leaders can start by joining a sharing platform and giving it a try. City officials should also talk to community members who use shared platforms. "Ask them about their experiences, their results and what’s missing," she concluded.
The impact of the sharing economy is becoming more evident in South Carolina. A recent search of Airbnb’s website revealed accommodations offered in a number of cities. For Charleston’s historic district alone, there were 89 listings. Hilton Head Island had 488 listings. Airbnb had 89 listings posted for Clemson. Smaller cities that draw tourists, host special events or are located near water or other natural amenities are also being impacted.
Many state legislatures are wrestling with the tax and regulatory issues related to these new types of businesses. The South Carolina General Assembly tackled its first sharing economy issue in June by passing legislation that allows transportation network companies such as Uber to operate in South Carolina. The Municipal Association worked with Uber and other interested parties to ensure the new law allows cities flexibility to fairly collect taxes from the companies and ensure the safety of riders and drivers.
Attendees at the Association’s 2015 Annual Meeting in July can learn more about the NLC report and its findings during the Friday afternoon breakout session, “Cities and the Sharing Economy.”
Reprinted in part from Georgia’s Cities, published the Georgia Municipal Association.