Regulation Nation: The Death of Opportunity

July 18, 2016

By: Bobby Casey GWP Managing Director

AirbnbWhile I listen to government advocates tell me how the police and regulations protect me and my family from the dark underbelly and dregs of society, I can’t help but wonder who comprises that felonious population.

When I think about that from which a reasonable person would need protections, murderers, rapists, kidnappers, thieves, and fraudsters come to mind. They violate the rights of people, and are both dangerous and criminal.

When I look at the actual statistics of who occupies US jails and prisons, however, I get an entirely different cross-section of people! Not to say that there are NO murderers and rapists in their midst, but the majority are rotting in cells over victimless nonsense like drug possession or sales. From a strictly pragmatic and economic perspective, spending approximately $25,000 to $30,000 per year in tax dollars per prisoner on 86% of the prison population to treat victimless offenders the same as rapists is ridiculous if not totally irresponsible.

The regulations imposed on our small business entrepreneurs has law enforcement treating them like common criminals now. While nothing really shocks me anymore when it comes to the wild tyrannical imaginations and musings of government, this is outrageous by any standard.

We mentioned earlier how ride-sharing services like Uber and Lyft were shot down in Austin, Texas because they weren’t held to the same regulations as taxi services. Ride-sharing was welcomed with open arms by the market. The customer base loved the lower price-point, the drivers loved the flexibility and income… so what happened? The taxi cartel got wind of it and put up a stink about the regulations, the government got involved, and now there are a litany of restrictions to ride-sharing depending on where you go in the United States.

Regulations are like taxes: a huge economic burden. When they are applied inequitably, the solution isn’t to tighten the screws on the ones who aren’t paying as much, but rather to loosen the screws on the ones having to pay or do more.

In that same article we touched upon that little spat between the city of San Francisco and Airbnb. California is not going to concede on this. It doesn’t matter that despite the state’s GDP they are woefully in debt. What matters is making sure our hospitality cronies are comfortable and happy.

Santa Monica is the current title holder for worst anti-short-term-rental laws (which is nothing to be proud of). Here’s the gist of this law:

The new regulations ban absentee hosts, however hosts are not required to be on site full time. The hosts’ work, social and personal business can go on as normal, as it would for a non-paying guest. “Registration for the business license is free, and no business tax would be owed for any rental income below $40,000, though the occupancy tax would still be required.”

Recently a man by the name of Scott Shatford became the first “convict” under the new short-term rental laws in Santa Monica, California. Take a look at the “charges”:

“[E]ight misdemeanor counts of operating a business without a license and failing to comply with citations after he refused to stop renting out his properties.”

Just reading that has me seething. He was fined $3,500 by the way for this. He consented to letting out his properties. The temporary occupants agreed to the price and terms. The government awkwardly injects itself by creating a “Vacation Rental Enforcement Task Force” dedicated to enforcing the city’s ban.

A task force? Like the kinds they use to track down serial killers and cartel kingpins?  Are they kidding me? No. No they aren’t. Not only are they NOT kidding, the joke is on all the folks who were excited about making a little extra money off letting out their properties:

“A city report estimated the ban would outlaw 1,400 rental units, or about 80 percent of the city’s short-term rentals.” (Source: Institute for Justice)

To hear the city central planners explain the “reasoning” behind this ban is laughable. According to Salvador Valles, the city’s Assistant Director of Planning and Community Development, there are two major reasons:

  • The overall increase in housing prices in the city and region.
  • Companies taking over multiple units and subleasing them as short-term vacation rentals, decreasing the housing supply and putting even more pressure on housing prices.

 

It’s no secret that coastal properties come at a premium. Long before Airbnb was a glimmer in the entrepreneurial eye, West Los Angeles property prices were absurd. And for as long as there have been beach front properties there have been beach front rentals. The reason why property prices are so high out there is because of the finite amount of California costal homes available and the infinite amount of people wanting to live there. West Los Angeles is a hub for countless industries. Everything from huge ad agencies, to insurance companies, to law firms. It’s prestigious to have an office there, so these big wigs do just that.

The Forbes article goes on to say:

“More than just driving up rents, Valles says, the decrease in owner- and long term renter-occupancy has the potential to change the character of the city. ‘It becomes more of a transient community than a neighborhood where people are invested in the community.’”

Whether someone buys up a property and lives on it, visits it, rents it out long term, or lets it out short term, what difference does it make? The property is off the market. He sees a problem with having more residences serving a hospitality role? Interesting. Will the good regulators of Santa Monica be instituting a screening process to first learn the intentions of property buyers? Will the intentions to rent short term be considered criminal? This is the type of stuff you’d expect when trying to establish residency in another country… not another city!

Listen, there is absolutely NOTHING wrong with being a nomad. I don’t stay in one place for 365 consecutive days, and haven’t for years. I’m in the business of internationalizing people and just did a whole interview on location independence, in fact. This is a real THING! People are getting back in touch with their nomadic roots rather than planting them and settling. Jobs are far more portable, people are becoming disenfranchised, and the world in many respects is getting tighter and more connected. 100 years ago, going to another country could’ve been life threatening. Today, air travel is one of the safest modes of transportation.

So this central planner who’s STUCK in his geography is looking down his nose at folks like me that are constantly on the move? Or does he have a problem with the tourists who come to Santa Monica unloading millions of dollars every year eating at their restaurants, shopping at their stores, and paying to park their cars? Either way, he’s going to let that snobbery kill income opportunities for over a thousand property owners.

San Francisco lost its battle with Airbnb but still has a considerable set of regulations in place, though not nearly as bad as Santa Monica. The very idea that these regulations are helping the housing market and keeping it more affordable is preposterous.   The reality is, short-term rentals like this were helping people pay their mortgages, and lifted the stress of living paycheck to paycheck in a city that is infamously expensive.

San Francisco properties are being bought up by the Chinese for millions of dollars, and then rented back out to the city’s residents at higher premiums. I don’t see that being a contentious issue for the city planners, yet that is exactly what is driving up the real estate prices in the Bay Area. I don’t oppose anyone buying property for any reason, but the city is blatantly scapegoating the individuals letting out their rooms for a supply and demand problem that pre-existed Airbnb.

I stand by my claim that this is more about the hotel lobbyists and not about creating affordable housing for long term residents. In fact, the unions have a huge stake in this game. And their trade union is financing an aggressive attack on Airbnb and other short term rental business models.

It’s pretty safe to say we do NOT have anything near a free market in the United States. It’s only going to get worse. For every innovation, the state stomps it out with ten regulations or more. It’s sad that they can win their political seats on the backs of how pathetic our middle class is, and then proceed to destroy them at every opportunity.

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