The “gig economy” took a major blow Wednesday as results of the Tuesday, Jersey City, New Jersey referendum on Airbnb-type rentals won by a landslide. The referendum took place only a four-minute subway ride away from Wall Street on the opposite bank of the Hudson River. Jersey City is part of the U.S.' largest metro-area, New York, and is home to one of the fastest-growing Airbnb locales. Airbnb is a website that allows homeowners to rent out their homes to those who want to rent them. Rental “agreements” can range from one day to several months although most rentals are for less than a week. Airbnb is the middle-man and collects a percentage of all transactions.
Airbnb is only a decade old and has grown from only one listing into a multi-million listing behemoth, with nearly 100,000 listings in the New York City metro area alone. The current valuation ahead of a planned IPO is projected to be over $40 billion making it by far the largest “hotel operator” in terms of valuation, revenue, and room-nights.
The referendum sought to ban homeowners from renting out their apartments to tourists and others that would normally have had to pay sky-high prices to hotels. It capped the shortest lease at 60 days if the homeowner wasn’t present. Proponents of the measure contend that high-rises were morphed into hotel-like buildings that changed the needs and dynamics of neighborhoods.
New York City had already banned the renting-out of apartments for any term less than 30 days unless the homeowner was present. This moved demand from New York City to Jersey City causing an explosion in listings. While legal objections are all but certain the referendum will go into effect on Jan. 1, 2020.
Recent regulations on Uber and other “gig economy” apps have also increased in recent months with Uber being banned outright in several cities including Turkey’s largest metropolis, Istanbul. London also banned Uber then modified its ban with the current situation of tighter regulations and higher taxes. Despite added regulations Uber is, for example, still nearly half as cheap as a normal black cab in London. Similarly, Airbnb is a much cheaper alternative to hotels with added perks such as larger rental areas and a “homier” feel as it lists actual homes.
With Uber’s stock price diving to an all-time low Wednesday and Airbnb on the cusp of losing one of its most lucrative markets, is the “gig economy” on the ropes? Yes and no. Special interests such as hotel and taxi lobbies have spent millions to fight this threat to their bloated and highly profitable industries and have just begun tasting victory. This will only embolden them to continue ad campaigns and lobbying of politicians to ban “gig economy” businesses. Who cares what a tourist thinks anyway, they don’t vote in your local elections anyway, right?
The problem is the vast majority of Americans have never used Uber or Airbnb and they are truly in their infancy. If they are left to grow organically, they will soon be too big to stop as both their userbase will have grown to make up a large part of the electorate and simultaneously their coffers will be full enough to fight back on a nationwide scale.
I believe these are merely short-term setbacks in an inevitable shift for improved efficiency in inefficient markets. Hotels will have to do better or they are destined for a major downsizing. Look for these gig-economy companies to bounce back soon.