Friday, June 27, 2014

Is Grand Rapids regulating the sharing economy too strictly?

Recently Time Magazine included Grand Rapids in a list of cities they believed were “attacking” the sharing economy. The sharing economy, for those not in the know, is the increasingly popular practice of individual people renting out their “stuff” for cash. Before internet sites were developed to connect people who need particular items with people who have particular items, the average person either borrowed whatever he needed from friends or neighbors, went to a rental shop, bought it outright, or went without. But as websites connecting people proliferated, and the economy tanked, people found their willingness to rent out their spare bedroom for a weekend, their car for a trip to the airport, or an antique necklace for a wedding increased - as long as the rental fee was worth their while. Renters decided they were willing to take perhaps a bigger risk of renting from a stranger if the price was low enough.

Websites that have thrived using this new person-to-person model include Uber, Lyft, Airbnb, Snapgoods (now relaunched as Simplist), and many more. There are a number of built-in problems with this business model, however. Risk is higher, even if businesses cover the losses of the occasional bad-faith renter or provider. Liability is, of course, greater with unbonded, unlicensed, unregulated service providers. One personal injury lawsuit can erase years of diligently made earnings. And, perhaps more importantly, the low overhead required for service providers to enter the market makes them a threat to businesses that operate more traditionally.

Now services that specialize in offering rooms, rides, and equipment cheaper are facing pushback from established businesses or industries or even cities. This is similar to the conflict between food trucks and restaurants seen in Grand Rapids, with restaurant owners pressuring the city to limit the scope of the food trucks’ operations so their bottom line would not suffer.

Unable to compete for lowest price because the cost of following burdensome government and union regulations is so high, businesses have turned to government to demand these new sharing services be either made illegal or be made subject to the same regulations they must follow.

Grand Rapids is only one of a number of cities that have had to grapple with this problem. And as of June 12, the city’s planning commission has voted 4-3 to support regulations that limit Airbnb operators to one-room rentals of only two adult guests. They must also be licensed and the city will only issue 200 such permits to allow for Airbnb accommodations. The city will also notify neighbors when a permit is given.

Whether this is “attacking” the sharing economy depends on your opinion. There is a price to be paid for safety and dependability, but the rapid growth of sharing businesses suggests it may be too high.