The “sharing economy” as a lever for City transformation

City transformation is a major objective of every city planner. Whatever we refer to more livable cities, efficiency, economic growth, the regeneration of poor or industrial quarters, all these objectives need to engage cities in a process of transformation that addresses not only the urban landscape but also economic, behavioral and cultural structures. 

Traditionally, urban planners have addressed these transformations through direct interventions in the territory with large public works. This has been the most common mechanism used for reshaping cities and districts. 

However, it is no secret that this mechanism, though being highly effective has limitations and needs to be aided by policies that permit and incentive the regeneration of quarters. These policies commonly involve moving part of the population and business to different areas of the city, involving therefore a significant social cost.

Together with the reform of the territory, companies and public organizations are offered tax breaks or other incentives in an effort to motivate them to move to the new areas. However, not only an accurate targeting is almost impossible and sometimes backfires, but the whole process is costly and slow. We confront a typical chicken and egg problem, where companies don’t want to move until there is enough mass to justify it while public resources have to be diverted into the new area hoping for its success.

A major problem in this process is because of the size of the investments associated with the transformation. Certainly, building a hotel in a deprived area, moving a university or a museum are  major investments.

Also, even if a hotel brings tourists to the quarter, it offers many of the services that their clients need, particularly in terms of food and amenities, limiting externalities and hence its transformative capacity of the surroundings.

Are there other, maybe better, ways?

Possibly faster and with lower requirements of investment?

Can the so-called sharing economy bring new tools to the table?

If so, what should Cities do in order to benefit from its contribution?

Chances are that if you go to New York and try to book an apartment through Airbnb you end up in Brooklyn, maybe in Williamsburg. Just take a look and you’ll see that apartments in Manhattan are expensive and compete badly with the existing offer of hotel rooms while you get a much better return of your money in Brooklyn, Queens or other quarters of the city.

This is nothing particular of New York, if you look at Barcelona, you will see that in contrast with the noisy neighbors’ protests in quarters such as Barceloneta or Citutat Vella, the best offer for apartments is in Eixample or in other areas where not only conflicts are low but apartments are bigger and better, like in Brooklyn.

If you look closely to what happened in these areas in both cities, you will also observe a flourishing of cafés, restaurants and in general life around the offer of apartments. Of course, I am not pretending that this is solely the effect of Airbnb and a-likes, but for sure they had some influence.

Contrary to hotels, apartments rented through sharing platforms are not able to capture value coming from food or amenities, but  they transmit it almost entirely to the quarter where they are situated. In fact, supermarkets, shops, restaurants, coffee shops nearby are the direct beneficiaries of it and not the platform or the apartment owners.

This indirect network effect of platforms has been overseen so far, however its impact is clearly visible in many cities.

Nevertheless, there is a component that makes them even more attractive for a city planner: its high granularity. In contrast to hotels where the investment necessary is quite high, successfully run an apartment through sharing platforms need a  minimal investment and apartment owners don’t even hope for tax breaks or any other type of fiscal benefit.

Even more, the beneficiaries are not large hotel chains but small business owners, normally living in the same quarter or nearby and the externalities that benefit shops, cafés or restaurants also remain in the quarter. Many times we encounter traditional shops that locals consider either outdated or inconvenient because of limitations in opening hours that experiment a rebirth with the advent of these platforms. It is often a blow of fresh air to these, otherwise, ailing business.

You can argue that this effect is limited, but let me say that is probably faster and maybe as transformative as the installation of large hotels or big office buildings in a quarter.

What is probably more interesting of these effects is their generativity, their capacity of creating new proposals without the intervention or support of the city. This can be observed with clarity in the two cases that we are using as examples. Both in Brooklyn and Example – Barcelona we can find new business appearing with the ambition to innovate, to bring new aesthetics and new proposals to the city.

You may think that this effect, if exist, will be limited to accommodation in highly touristic places, but other forms of the sharing economy can contribute too to the transformation of cities. For the sake of the example lets take car sharing in cities such as Amsterdam or San Francisco. In both cases the availability of car sharing stations in certain quarters had the impact of reducing the need of cars for significant segments of the population. Again the city acts a platform providing the spaces and enabling this to happen while private companies compete with a diversity of propositions. Can that be extended to motorbikes? or electric bikes? Probably !

Small coordinated interventions in policy leveraging the effect of the sharing economy can therefore have a significant transformative effect in cities. Let’s imagine for example, a policy of favoring tourist licenses for Airbnb apartments together with cafés, restaurants and food trucks coordinated with the transformation of the area into a walkable space. This type of policy nudge can possibly have a transformative effect if applied to the revitalization of touristic locations and do it with minimal commitment from the city and extremely low public investment.

Same type of interventions aimed at mobilizing sharing economy entrepreneurs could also work in other areas such as transportation, with mix of car and bike sharing, creating near car-free zones transforming not only quarters and creating wealth for large segments of citizens but also pushing cultural change.

in general terms, mobilizing the sharing economy, aligning it with city objectives can provide not only a faster path to city transformation but also a  wider distribution of wealth able to raise the living standard of larger segments of the population.

Therefore, maybe we should start considering the sharing economy as an opportunity, as a tool for policy intervention and market design rather than an annoying problem to deal with.