Fostering innovation while retaining high standards and mitigating possible conflicts - Vienna's

The services of the so-called sharing economy are the aspects of the Digitalization whose effects are most clearly visible in the cities around the world. In particular, the ever-growing trend of short-term rentals is raising a number of challenges to both authorities and the locals, too. The very character of certain neighbourhoods as well as the housing market of attractive urban centres are undergoing a significant transformation calling decision makers for immediate action that make room for innovation without jeopardizing the balance of the urban

ecosystem. Not an easy task, right?

Vienna experienced a big rise in Airbnb listings, from approximately 1,000 to more than 8,500 in just a few years' time but still seems to have managed to find the right way to regulate this development. We have therefore contacted Klemens Himpele, Head of the City of Vienna’s Department 23 on Economic Affairs, Labour and Statistics to learn how the Austrian capital did that. Is there a golden recipe? What were the main axes of action? How does the famous Austrian model for affordable housing resist this digital wave?

What are the main effects of the online sharing economy on the housing sector?

While the sharing economy in the area of short-term rentals is still growing in Vienna, the overall effects on the sector are limited. Still, as short-term rentals are spread unevenly within the city, there may be some impact in certain neighbourhoods where these rentals are concentrated and even more so in buildings where the share of Airbnb apartments is already at a significant level. Here, conflicts may arise between residents and tourists due to noise, feelings of insecurity, increased operating costs, etc.

What has been the impact of platforms like Airbnb on the housing market of Vienna?

As the number of short-term rentals is still low and the Viennese housing market is highly regulated, overall housing market effects are fairly limited. Still, in certain areas of the city with higher shares of short-term rentals there may be some effect especially due to the fact that it is attractive to convert rent-regulated apartments to short-term rentals as a means to circumvent rent regulation. Currently, this mainly applies to houses with single owners, as in houses with multiple owners, whether owning one or more flats, all owners have to jointly agree to allow short-term rentals. Recently, a growing number of flats that are offered as an investment in such houses are now offered with the explicit mutual permission of short-term rentals for all owners.

Which were the main axes of the strategy that the city has developed to counter it?

Generally, the City has followed a liberal approach while enforcing existing regulation in terms of taxation and limits to tenants to sub-lease apartments especially in the social housing sector. This has been made possible by informing tenants, hosts and the media and by putting in place new regulation which obliges platforms to deliver data to the City to enforce taxation or to reach an agreement with the City on how to guarantee taxation is enforced otherwise. Efforts to inform and to enforce taxation have already been successful as general awareness for the issue has been rising and the city has been successful in receiving data from 12 platforms. Still, these efforts are ongoing and have to be adjusted in the future as the sharing economy is still growing and constantly changing.

Is it possible to regulate Airbnb? Which should be the priorities?

It takes some effort to successfully regulate platforms such as Airbnb, first because regulation is always lagging behind innovation and second even more so as some of these platforms can be seen as “regulatory entrepreneurs” that may explicitly try to circumvent existing or possible future regulation.

Overall, the priorities of regulation should be to foster innovation while retaining high standards and mitigating possible conflicts. Special focus should be put on avoiding loopholes that may lead to a non-level playing field between the incumbents (such as e.g. traditional bed and breakfasts) and new businesses (such as Airbnb landlords) by enforcing taxation, commercial law and other standards in areas such as safety standards, labour conditions and zoning. This is also an issue as regulation is a means to mitigate conflicts between residents and a growing urban tourism sector.

Would you highlight any good examples or inspiring practices outside Vienna when it comes to a city where sharing economy and affordable co-exist in a harmonious way?

The one solution is still to be found if it is ever to exist in a constantly changing and heterogeneous environment. Harmony is not too likely as conflict is immanent. Space is always scarce in a prosperous and growing city like Vienna. Then it is the role of policy and the public sector to implement and enforce rules and regulations that allow dealing with conflicts in a fair and balanced way to maximize overall welfare.

Certain aspects like limiting home sharing for rent-regulated or public housing (as in San Francisco) or certain areas of the city where residents may already be highly strained by tourism (as in Barcelona) may help in certain situations. Still, it is all context-specific and must be enforceable. The best approach is still not to let the conflicts arise to a level where harsh regulation is direly needed.

In an ideal world, what would be the main characteristics of a fair, sharing economy in your view?

One should try to differentiate between sharing as a non-commercial social practice and short time rentals as a business. Most of the conflicts in what is commonly termed as the “sharing economy” arise out of short-time rentals as a business model that has become attractive due to new forms of intermediaries or platforms.

In an ideal world one can solely benefit from the new possibilities of such innovations while avoiding the negative side-effects. When it comes to short-time rentals, may it be cars, bicycles or holiday homes, in an ideal world the economic benefits of such business models would benefit everybody in an open market as producers and consumers, while guaranteeing fair conditions in terms of taxation, health and safety standards, working conditions as well as regulation to mitigate conflicts on issues such as land use or the use of public space.