Despite NYC ride-hailing decision, pitfalls ahead for cities regulating gig economy
Chicago already suggested it may follow suit with the driving apps, while a need for governments to keep up with regulations and state preemption may slow things down.
New York City Council’s vote earlier this month to regulate ride-hailing made it the first city in the United States to do so — and raises the question of whether others will follow its lead.
And while Chicago wasted little time in exploring regulations of its own, the move also may hint at further regulations from cities for the so-called "gig economy," which prioritizes short-term freelance contracts over permanent work, with people earning money through ride-hailing like Uber and Lyft or opening their homes for short-term rentals.
Regulating the gig economy represents a unique and difficult opportunity for city governments, which must balance their desire to encourage innovation and disruptive technologies, while also trying to ensure the levers of government keep up with that progress and have checks and balances where appropriate. State government preemption puts another pressure on that legislative process.
"We have to find a way to work together between industry, local government and the community to find regulations that will work. Otherwise it just drives the activity underground," Matt Curtis, founder of the Smart City Policy Group that advises cities and businesses on the sharing economy, told Smart Cities Dive.
Ride-hailing: The next frontier for regulations?
New York City Council voted to, among other things, introduce a minimum wage for drivers, add a new license category for ride-hailing companies and freeze the issuance of new ride-hailing licenses for a year.
It was a move hailed by elected officials and groups that represent ride-hailing and taxi drivers as steps in the right direction and could represent an instance of a city standing up to the ride-hailing companies.
"We’ve seen some extraordinary efforts by cities saying no to companies that tried to dictate to them," New York City Mayor Bill de Blasio said at a rally celebrating the legislation’s passage. "I hope today’s progress will be felt around the world and it will remind cities to take power and not allow multi-national corporations to do things that hurt their people."
But a major benefit cities have found in embracing the growth of ride-hailing has been that it provides transportation options to traditionally underserved areas. During New York City Council’s debate on the bills to regulate ride-hailing, numerous council members noted how helpful Uber and Lyft have been at filling in gaps in neighborhoods yellow taxis might avoid.
And Chicago may be faced with a similar problem. According to Crain’s Chicago, a spokesman for Mayor Rahm Emanuel poured cold water on the idea, noting how hard it can be in that city to be picked up or dropped off in certain areas.
Meanwhile, there is disagreement on the number of hours driven by those who work for ride-hailing companies, who are classified as independent contractors and so are not eligible for benefits like health insurance or a 401k retirement plan.
In a piece for the National League of Cities (NLC), Lawrence Mishel, distinguished fellow at the Economic Policy Institute, said the average Uber driver works 17 hours a week for the company, so any income they make is supplemental. The Chicago Tribune Editorial Board used that argument to suggest that a minimum wage requirement "turns ride-share work into what many drivers don’t want: regimented hourly work."
But many drivers do work for ride-hailing companies full-time — for reasons including ease of employment and the flexibility it gives them — and still struggle to pay rent and other expenses in cities where the cost of living is high.
"Our city and nation don’t need another gig-economy industry that makes a small percentage of top executives and investors extraordinarily wealthy by exploiting the labor of ordinary workers," the Chicago Sun-Times Editorial Board wrote.
While other cities may be tempted to follow suit, New York City Council Speaker Corey Johnson warned them at a press conference to be cautious, as every city’s circumstances are different.
"These are complicated issues, and the dynamic in every city is different because every city is different as it depends on the transportation network, it depends on the vehicles coming into the city, it depends on if they have a congestion pricing scheme, it depends on the level of mass transit, it depends on density in those cities," Johnson said.
"We have to find a way to work together between industry, local government and the community to find regulations that will work. Otherwise it just drives the activity underground."
Founder, Smart City Policy Group
Short-term rental business looms large for cities
There is perhaps no greater challenge for cities when it comes to regulating the gig economy than the short-term home rental industry, and companies like Airbnb and Homeaway.
Short-term rentals, which allow homeowners to let out some or all of their homes, have been blamed by some cities for driving up housing prices, and some have already looked to regulate the industry. Major cities such as Denver, Salt Lake City, San Diego and Boston took action, while tourist-heavy cities including New Orleans and New York City have followed suit and a slew of others, big and small, have followed their lead in 2018.
In New York City, regulating short-term rentals has been done on safety grounds, with fines for the inaccurate reporting of listings and requiring that data be shared with the Mayor’s Office of Special Enforcement. Airbnb recently filed a lawsuit against the regulations.
Like with the reaction to New York City’s ride-hailing decision, the backlash has been fierce from representatives of short-term rental companies, who accused local leaders of being in the thrall of "hotelier interests over those of everyday New Yorkers."
"Not only does this bill ignore the transforming travel economy and the important economic role short-term rentals have played in allowing many New York City residents to continue to live in one of the most expensive cities in the world, but it is an assault on data privacy on platforms that have prioritized protecting users since their creation," Matt Kiessling, Vice President of Short-Term Rental Policy at trade association The Travel Technology Association, said in a statement.
Short-term rentals are an attractive option for homeowners, as they can rent out their property or buy another unit specifically to be rented out, so bolstering their income. Those short-term rentals are more flexible, and offer another option for out-of-town tourists, who may want to avoid large per-night hotel room charges.
The short-term rental industry has come under fire for hosts with multiple units, who buy a home purely to rent it out. A study by the American Hotel & Lodging Association found 81% of Airbnb’s U.S. revenue in 2016 — $4.6 billion — comes from what it called “whole-unit rentals,” meaning that the owner is not there when it is being rented out.
The study saw growth in revenues across the cities it studied, except New York City and San Francisco, which it said had "enacted regulations to limit abuse by commercial operators and ensure short-term rentals represent true home sharing."
That means another balancing act for city governments, which must try and find a way to take into account people’s desire to add to their incomes and offer a service, while also doing everything they can to try and prevent what has been deemed a crisis around affordable housing from spiraling out of control.
And another issue has reared its head in Washington, DC: some high-end and new apartment buildings are using companies to let out vacant units on a short-term basis, while tenants in other units sign long-term leases. DC Attorney General Karl Racine sent letters to 19 building owners and managers of 33 city buildings asking about these arrangements, a move he said in a statement would "put building owners and managers on notice that short-term rentals must comply with the District’s consumer protection and rent control laws."
Curtis said, given the apparent friction between short-term rental companies and the cities where they operate, as well as the differing regulations between jurisdictions, it is imperative that both parties look to work together towards common goals.
"The industry is going to have to realize that there are going to be differing regulations from towns that are neighboring each other and a demand for compliance to those regulations," he said. "At the same time, cities need to realize that regulations are only going to achieve compliance and be effective if they're done in a fair manner and working hand-in-glove with industry to find a reasonable solution."
Challenges, opportunities for cities to legislate
While cities may be wary of the effects of companies that make up the gig economy, there appears to be some support on the national level for working closely with them in regulations and partnerships.
A 2017 report from the NLC found that 78% of cities are broadly supportive of growing the sharing economy, while 55% of cities describe their relationships with those companies as good or very good, with 16% having entered into a formal partnership and 79% open to forming one. But 33% of cities described their relationships with those companies as "very poor."
And for its part, the U.S. Conference of Mayors passed a resolution at its 2013 annual meeting in support of policies that help the sharing economy, noting that it "empowers citizens to find new ways of providing jobs, housing, transportation, food, and improved lifestyles for themselves; provides additional income for households and local businesses; makes city living more affordable; and generates reinvestment in communities."
Worldwide, the Sharing Cities Summit brings together mayors and their deputies to discuss how the sharing economy affects residents’ lives and can be regulated while embracing the innovation.
But it can be difficult for city governments to keep up with the speed of innovation, similar to the issues municipalities have had with dockless bikes and scooters arriving on their sidewalks and not having the rules in place to regulate them. Curtis said that given the sheer amount of innovation going on in cities, local governments could well respond to the challenge and speed up their processes.
"By the time they're catching up with new regulations that speak to a specific technology, the technology has evolved, and city government has to start over again," Curtis said. "I think what we will see is city government begin to work a little more quickly and I think we will begin to see best practices that are used as model examples that cities will replicate."
In addition, Curtis said there must be a "sincere amount of community engagement" between city governments, their residents and the companies that form the gig economy. He said it will be crucial to find regulations that will both achieve compliance and be effective, something that companies have been opposed to for fear of their innovation being stifled.
"There is a solution," Curtis said. "Obviously, the industry doesn't want to be too regulated and the cities might not fully understand the industry well enough to regulate it effectively. But between the two, we can find solutions and we can find common ground."
During the press conference on the new ride-hailing laws, New York City Council Member Brad Lander said the new laws represent the first time a living wage for workers in the gig economy has been set. He said that other cities should follow suit.
"As we’re starting to see the future of work, freelance work … we’re saying we’re seeing the ways the world of work is evolving, more and more people categorized as freelancers, as independent contractors, they’ve got to earn a living wage too,” Lander said. “I’m proud that we’re becoming the first city in the country that says, ‘Independent workers have got to be able to earn a living wage.'"
And while cities may want to regulate the gig economy, they may have to be careful of their state governments, which could have laws in place to preempt such moves. That is part of a wider malaise in the relationships between the two levels of government, described by Harvard Kennedy School professor and former Indianapolis Mayor Stephen Goldsmith as at an "all-time low," with cities "almost at war with their statehouse."
In Oregon, Uber lobbied the state legislature to pass a law preventing cities from regulating the ride-hailing industry, part of a pattern of behavior including not reporting a security breach that angered leaders in Portland, OR so much that they fined the company. Uber showed contrition, and in July had its license extended for one year after a period of good behavior.
“Transportation network companies — in particular, Uber — have spent millions of dollars in a blitz to strip cities of their authority to regulate city transportation."
Senior counsel, National Employment Law Project
Companies like Uber and Lyft came under fire for working to promote preemption laws in a report by the National Employment Law Project (NELP) early this year, with 41 states being found to have passed such laws.
NELP said that those laws often skirt labor laws and look to completely deregulate the industry in moves that critics said is reminiscent of the work by the gun and tobacco lobby to defeat regulations.
"Transportation network companies — in particular, Uber — have spent millions of dollars in a blitz to strip cities of their authority to regulate city transportation," Rebecca Smith, senior counsel at NELP and a co-author of the report, said in a statement.
And at the local level, Airbnb and Homeaway owner Expedia donated $300,000 between them to the campaign in Palm Springs, CA to defeat a ballot initiative that would ban most of the city’s vacation rental properties.
Curtis said that it is important to learn from best regulatory practices at every level of government, and make sure that mistakes are not repeated.
“I would suggest that cities cannot look at past examples that haven't achieved compliance," he said. “So let's look to creating new regulations not using some bad examples as our guiding compass, but let's look at creating new regulations by working with the industry, getting a better understanding of the activity, getting a better understanding of the demands of the traveler, and finding the solutions that will work for our community."
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