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Sharing Economy Presents Challenges and Opportunities for Cities

March 5, 2015

Savannah is an increasingly popular tourism destination, seeing more than 13 million visitors last year, according to Bridget Lidy, director of Savannah’s Tourism Management & Ambassadorship Department.
 
The city’s popularity is fueling an uptick in homesharing, where one party rents out all or part of home to another party on a temporary, one-time basis. Airbnb is one of the most widely known home or space sharing companies.
 
“The short-term vacation rental business has grown exponentially here in the last year,” Lidy said. When city officials realized the new homesharing activity was creating concerns in the community, the city turned to local stakeholders—both residents and representatives of the city’s tourism industry—to help work out a solution.
 
“The initial concern came from the industry,” Lidy explained. “They wanted to have some sort of regulation in place to ensure fairness and equity. If an individual wasn’t charging hotel and motel taxes and sales taxes and remitting them, then they could undercut competition and charge less for a room.”
 
Savannah’s zoning code did not have a definition of “short-term vacation rental” or any standards or conditions attached to the use, so the city held public meetings to start the process of creating them.
 
“During the public meetings, some residents showed up and they were adamant about the challenges they were experiencing in their neighborhoods with quality of life issues such as noise, trash and parking,” Lidy explained. “We created an accompanying regulatory ordinance to ensure we were able to protect the neighborhood integrity while ensuring this use could still be in play. We were able to broker a compromise with the neighbors and the tourism community.”
 
Since Jan. 31, when the new rules went into effect, those who rent out homes on a temporary, short term basis in Savannah are required to apply for a certificate from the city, can’t have onsite advertising and must submit hotel/ motel taxes and sales taxes, among other requirements.
 
“We visit websites that advertise temporary vacation homes in the city; those that we don’t have a record of, we are contacting those individuals to tell them they need to come into compliance with the new regulations,” Lidy said.
 
Savannah’s experience is in step with several other cities who are dealing with the issues surrounding shared economy businesses, according to Brooks Rainwater, director of the City Solutions and Applied Research Center at the National League of Cities (NLC). NLC recently conducted a survey in 30 of the largest cities in America to measure the sentiment and direction of the sharing economy.
 
“Overall, cities are finding that there is a way to strike a balance between promoting innovation, ensuring consumer safety and addressing existing industries,” Rainwater said.

As the shared economy upends traditional businesses and disrupts local regulatory environments while at the same time fueling innovation and growth, the attitude towards sharing businesses has also shifted in cities, according to the study.
 
“Specifically, ridesharing and homesharing companies that often came into cities with more of an aggressive posture are now starting to focus on working with the cities in terms of regulatory and taxing issues,” Brooks said. “We are hopeful the trend continues.”
 
Last August, NLC formed the Sharing Economy Advisory Network, composed of business, policy leaders and city officials to identify the regulatory challenges posed by the disruptive technologies that power the sharing economy. The network is creating and promoting model solutions that can be adopted by cities as they work to resolve these questions.
 
The network is also identifying ways that cities can support and encourage the growth of new businesses in this space. “Georgia city leaders are invited to join the conversation, visit the Network on the NLC website for resources or contact me,” Rainwater said.
 
While there are emerging models in how cities address the new shared economy, Rainwater said the newness of the issue precludes long-term best practices.
 
“There is no one-size-fits-all regulatory solution, because one of the true innovations in cities is always the ability to experiment and come up with solutions that work best for the local context,” he said.
 
Rainwater said the biggest issues cities face are consumer safety, taxes and the existing regulatory environment.
 
“What has been really great to see is that our cities are reacting rather quickly,” he said, noting that the cities’ existing regulatory framework “doesn’t quite work the same way” in the shared economy.
 
“It is a balancing act, where cities are making sure they focus on public safety and taxes,” he said. “Once they have been figure out the regulatory environment that works best for that individual city.”
 
Shared economy expert April Rinne, who often consults with public, private and social sectors and frequently writes about the issue on her website (april-rinne.squarespace.com) and in national publications, emphasized that the sharing economy can be an “extremely useful, effective tool” to improve life in cities.
 
“It is a new lens by which we can unlock value in assets all around us,” she said. In her article, Rethinking Cities as Sharing Platform, Rinne suggested city officials:
 
First, build awareness within government about the sharing economy. Second, figure out what assets the city owns and might be able to share. Third, take a hard look at policies and figure out which regulations are in the way. “This isn’t easy, but it’s where the real opportunity is,” she said. “The sharing economy isn’t about unregulated activities; rather, it’s about developing appropriate regulations that maximize the (economic, environmental and social) benefits while balancing public needs.” Fourth, get involved. Rinne said city leaders can start by joining a sharing platform and giving it a try. City officials should also talk to community members who use shared platforms. “Ask them about their experiences, their results, and what’s missing,” she said.
 
Lidy said as part of the “creative coast” Savannah wants to continue to embrace this new economy. “We as a community have to be cognizant that people can come here to work on a temporary basis,” she said, noting that ridesharing companies like Uber may also soon be on the way to the city. “As these new things come available, we are trying to be as progressive as possible to recognize the benefit they can to bring to our community but also ensuring we protect the public good.”