Why Existing Regulatory Frameworks Fail in the Short-term Rental Market: Exploring the Role of Regulatory Fractures

Abstract

Over the past decade, home-sharing has evolved from fringe activity to encompass a booming short-term rental (STR) market of global scale. This rise has not been without criticism, as Airbnb and other STR platforms have been charged with exacerbating over-tourism, gentrification, and housing issues and engaging in anti-competitive behaviour. On the other POLICY RECOMMENDATIONSAs a result of our analysis, we recommend that jurisdictions looking to manage the STR market consider the following recommendations and insights in establishing regulatory approaches:1. The STR market is diverse. Policymakers must account for the existence of a spectrum of host types-from unsophisticated home-sharers to professional STR businesses-and refrain from crafting regulations that conceive of all STR hosting as commercial activity.2. Relatedly, hosts and guests participate in the STR market for social, practical, and profitbased reasons, and policymakers must keep these distinct and overlapping motivations in mind. In particular, regulations should be designed to limit commercialization without undermining access to the social and practical benefits of STRs.3. The costs and benefits of STRs vary depending on the shape and nature of the market in a given jurisdiction, as well as the local context. Thus, effective regulation rests on the ability of policymakers to both understand local market dynamics and how they intersect community issues, as well as leverage such information to craft tailored solutions.4. The STR market confounds typical two-sided market models, given the active participation of platforms alongside hosts and guests. Common regulatory approaches are ill-suited to addressing the dynamics produced by this three-dimensionality, and thus jurisdictions will need to innovate beyond usual tools to ensure regulatory effectiveness. 5.As key market participants, platforms have vested interests, including in influencing policy and regulations. Regulators must understand the central role platforms play in shaping the market and regulatory spaces, and account for this in regulatory frameworks. 6. To address issues, such as lack of compliance, authorities might consider the merits of co-regulation, whereby platforms are given responsibility for certain regulatory functions.

Managing Airbnb: A Cross-Jurisdictional Review of Approaches for Regulating the Short-Term Rental Market

“…Further, several provinces have amended existing tourist accommodation legislation to account for STR operations. The inclusion of property managers and platforms in licencing requirements and broader regulatory approaches is important to note, as it signals a recognition by jurisdictions that the STR market is not two-sided, but rather three-(or four-) dimensional (see Tedds et al 2021;Zale 2016). These approaches are summarized in Table 2.…”

“…For the public, governments, and various sectors, however, the rapid proliferation of STR activity in bustling metropolises, tourist spots, and now increasingly in medium-sized cities and rural areas, has generated not only new opportunities, but considerable tensions as well. As underscored in academic analyses (Dolnicar 2017;Gurran 2018;Guttentag 2015;Nieuwland and van Melik 2020;Quattrone 2016;Tedds et al 2021;Wachsmuth and Weisler 2018;Wegmann and Jiao 2017), the STR market engenders dichotomous characterizations. On the one hand, it is seen as offering substantial benefits, such as an income stream for hosts, local economic revitalization, improved accommodation supply, and competition-driven innovation.…”

“…Against the above backdrop, a growing number of governments have stepped into the regulatory fold. However, many local authorities have found it challenging to land on the right policy and regulatory mix for managing the STR market, with outdated or incomplete strategies, imprecise measures, and data, compliance, and enforcement struggles stymieing regulatory effectiveness (Tedds et al 2021). Born of different market dynamics and issues than those at play in the digital sharing economy, traditional regulatory tools and governance approaches are in many cases illsuited to the task the STR market presents (Johal and Zon 2015;Tedds et al 2021).…”

“…As noted above, a generally-held conclusion vis à vis policy and governance efforts in the home-sharing space is that regulation remains a work in progress. In particular, underdeveloped understandings of the market within policy spheres have often led to the adoption of anachronistic approaches ill-suited to market composition, dynamics, and the issues they create, thereby producing instances of what Saskia Sassen (1994) has termed regulatory fracture (Tedds et al 2021). Following this notion, we also seek to understand if and how Canadian jurisdictions are confronting, adapting to, and overcoming regulatory fractures that result from the limitations of traditional understandings of the market and conventional regulatory tools.…”