Playing to Win
Strengthening our democracy can begin at home.
A robust middle class is critical to a robust democracy, Alexis de Tocqueville observed, because it inspires trust in the system that is needed for a government of the people to last. As noted by de Tocqueville when he traveled the United States in the early 1800s, at the heart of the American experiment in self-government is the belief in the American Dream — that big idea, as my former boss President Bill Clinton used to say, that if you work hard and play by the rules, you’ll be rewarded with a good life and your children will have a fair chance at an even better one.
Were de Tocqueville roaming America today, no doubt as a digital nomad, the fragility of the middle class would give him pause. Speaking with younger adults, the Millennials and Gen Z-ers who will soon make up half of our electorate, would give him heartburn. Fifty-one percent of US Millennials question capitalism, 30% question the importance of democracy, and only 24% trust government. As potentially the first generation to make less than their parents, Millennials fear a future in which hard work and rule-following, including paying off their historic school debts, won’t mean making it — just the chance to hang on.
Middle-class Americans largely aren’t benefiting from the economics of the Digital Age. No question, technology has ushered in previously unimaginable good by saving, connecting and enriching lives. But technology also ranks among the economic threats to the middle class by keeping people from earning more and getting ahead — whether through the automation of individual jobs, or professions, or the replacement of whole companies that employed far more people than their successors do. If you’re in the middle class today, the chance of your “moving to the top-earning decile…has declined by approximately 20% since the early 1980s,” Jamie Dimon, CEO of America’s biggest bank, recently wrote to shareholders.
The hypergrowth of community-based networked platforms such as Airbnb itself reflects growing numbers of people looking for ways to make extra money. About one-quarter of Americans now use the sharing economy to earn at least a little extra income, according to Pew. Among US Airbnb hosts, 65% have annual incomes of $100,000 a year or less; 44% of hosts, $75,000 a year or less. To be clear, Airbnb is a product of the middle class needing new ways to stay in the middle class.
This is how we can play to win for our democracy: by leveraging networked technology to create economic opportunity for the middle class at a time when technology is in other ways undermining it. Together, our platforms and policymakers can start to address this by closing the gap between tech’s warp-speed advances and government’s more measured pace of regulation. Here are some suggestions based on the potential in the home, which is what we at Airbnb know best.
Using the home to bridge the earning gap
We need to begin by defining what we need to solve: the middle-class earning gap. Technology has boosted productivity but middle-class wages have flatlined. This stagnation in the face of increased productivity differs from what we’ve seen in previous economic transitions, when there was a lag between productivity gains and wage gains — but the gap eventually would close and the middle class would start to reap real benefits. When the automobile replaced the horse and buggy, whip makers lost work, but assembly lines yielded far more solid middle-class jobs.
To date, this hasn’t happened. A 2015 analysis for Airbnb by former presidential economic advisor Gene Sperling found that over the last 16 years, real middle-class household incomes have fallen rather than grown. The gap between real income and the historical norm for growth is $4,053.
And this is before even bigger disruptions set in. Widely cited recent research suggests nearly 50% of all American jobs could be replaced or displaced by robots, machine learning and artificial intelligence, and every robot that comes online costs about six human jobs.
Employment statistics historically have been the key metric in gauging the strength of the economy and the accessibility of the American Dream. Today, however, the true measure is whether you’re earning enough to get a fair shake at it.
The home has long been the middle class’s chief source of wealth, but today, fewer people can afford one. Between 1984 and 2009, the percentage of families who could afford a modestly priced home dropped from 60% to 50% (Jamie Dimon, again). Three years ago, President Obama’s housing secretary declared the “‘the worst rental affordability crisis that this country has ever known’” when a Harvard study showed half of all renters were spending more than 30% of their income on housing. We’re still in a crisis: the new Harvard study shows similar numbers.
Airbnb gives people a way to turn what is typically their biggest cost center into an earnings generator. The average US host makes $6,100 through Airbnb per year. That $6,100 can be enough to make up the gap in lost wage growth for middle-class households since the start of this century.
In traveling the world and speaking with prime ministers, presidents, governors and mayors about what they’re doing to address stagnating incomes, I have yet to hear of a program that is generating $6,100 a year for a middle-class family without a single dollar of taxpayer money being spent. (Just the opposite: 57% of US hosts are now remitting new tax revenue to their local governments, upwards of $270 million to date.) Airbnb is not *the* solution to wage stagnation, but many have turned to home sharing as a partial answer: 60% of US hosts say Airbnb has helped them afford to stay in their homes, and 51% say they rely on Airbnb income to make ends meet.
Consider Los Angeles. Despite the city having nearly 100,000 empty homes, home prices have risen over the years to a point where Angelenos are among the most housing-burdened city dwellers in the country. Earners in the creative and financial classes whose incomes continue to rise are driving up the overall price of LA housing. Prices are on par with New York City’s and San Francisco’s, but the median family income in LA is about $20,000 less.
LA’s housing challenges are not supply-driven — they’re a direct consequence of the earning gap. The typical LA Airbnb host makes $7,300 in supplemental income, and 23% use the money to stay in their homes. In addition, hosts are remitting taxes that are being used to help support the city’s affordable housing program, while the LA hotel sector has received over $600 million in tax breaks.
Updating policy to unlock opportunity
For the middle class, evolving how we regulate the home as an asset is a way to help bridge the earning gap. Here are three examples of how Airbnb and policymakers can work together toward housing policies that better support middle-class households.
- Level the playing field for renters. Providing renters with the same ability homeowners have to share their homes would be a small but significant reversal in a long line of housing policies that have provided benefits only to those who own, not those who rent. In New York City, for example, current restrictions on home sharing target multifamily buildings, which are more likely to be occupied by renters instead of homeowners. As Rev. Kirsten Foy recently made clear, renters in cities like New York are disproportionately people of color, which is partly a legacy of redlining, limited access to capital and other racially biased obstacles that have stymied middle-class ability to transfer generational wealth. Favoring homeowners over renters perpetuates this historic injustice.
- Help Millennials get in the door. In Jersey City, which is led by dynamic and forward-looking Mayor Steven Fulop, the developers of the 69-story Jersey City Urby are embracing home sharing as a way to attract Millennial tenants, many of whom are burdened with student debt and need an extra source of revenue to help them afford to rent there. Ironstate Development has become Airbnb’s first northeastern partner in our landlord-renter program, which brings building owners to the table with tenants to set mutually agreed upon rules for home sharing in their buildings, and provides owners with a share of the listing price earned by their tenants when they’re away.
- Turn unique challenges into advantages. Every city faces certain pressures on housing. For LA, it’s a high proportion of homes that remain empty for much of the year because of the number of Angelenos who work in the arts and entertainment (as 27% of our LA host community does) and travel frequently, or who maintain homes in the city because of the climate. These often empty homes aren’t going to wind up on the long-term rental market, but offer a partial solution as the city makes tourism central to its economic growth strategy and aims to increase inbound tourists by about three million over the next three years.
Even as the traditional home is increasingly being shared, homes also are being reimagined to make sharing easier. The West Coast is seeing a granny flat boom. Cohousing and communal living have gained toeholds in the housing market, especially among Millennials. These evolutions require policy changes, too.
All these approaches would quickly modernize the home as a source of wealth and unlock more benefits for the middle class. Here are two sets of policy changes to add further value to where people live that could be even more transformative long-term.
1)The networked home as the new economic hub. Homes and assets within homes already are becoming more fully utilized through platforms. Amateur chefs are hosting dinner parties for strangers in New York City and cooking take-home meals for their neighbors. We’re well past the question of calculating tax deductions for home offices, and getting deeper into questions of how to smartly evolve tax laws and safety regulations so they apply to the average American kitchen for regular people who don’t have a lawyer and accountant on standby.
At Airbnb, we know something about ensuring safety people-to-people, and we appreciate the role government has to play in safeguarding the public’s well being. We have developed tools and policies to make it possible for millions of people to open their homes safely for all involved, while helping governments solve the question of how to tax and regulate. Many of these lessons learned could apply to other platforms that help the middle class earn a living where they live.
2) The networked city as the center of an expansive region. The balance of population power has shifted in cities’ direction. According to one estimate, one million people move to cities every week. New tech talent and investment are clicking with pre-existing academic and manufacturing expertise to create hubs for innovation. Growing interest in tourism is emerging as a promising source of economic growth. Los Angeles isn’t the only city eyeing tourism for this purpose: the industry is now projected to grow faster than the global economy, at 4% per year versus 2.7%.
Now add a fully legalized, regulated hyperloop that gets anyone, tourists or workers, from anywhere, to anywhere in minutes. Together with legalized home sharing, it will further open up neighborhoods that historically haven’t benefited from travel. Healthy tourism — tourism that leverages the networked sharing of homes to spread the benefits across cities to middle-class and underserved areas — can boost hosts, guests and residents alike.
And just as giving renters the ability to share their homes would help balance out housing policies that have long provided benefits exclusively to homeowners, so would the hyperloop counter the ill effects of middle-class city dwellers being forced further out by housing prices that swallow their incomes. (As urban studies theorist Richard Florida observes, these rising rents and home prices are often driven by the very tech incursions that are remaking cities to begin with.)
With the hyperloop, where you can afford to live, relative to where you may need to go for work, would no longer be such a disadvantage. It will mitigate the economically and psychologically corrosive trend of long commutes — the twice-daily physical reminder of how many in the middle class are getting further away from the lives they had hoped to be living.
The ability for anyone to live, earn, tour and spend anywhere in a city and have the rest of it be just moments away will be transformative. The network and the hyperloop are examples of how technology, when used responsibly, can be a democratizing force. And our history, the history of humanity, is one of people harnessing disruptive technologies — fire, the wheel, paper, the printing press, electricity, the car, the phone — for momentous advancement.
Other platforms have similar ideas for how to help the middle class by optimizing other sources of capital and labor. What’s important is that we come to the table with policymakers to start playing together to win. Based on trust levels in our democratic institutions that are sinking closer to zero, we don’t have a ton of time to pull this off. But nor did we against the Great Depression, Fascism, the Cold War and Sputnik. We need to play to win when it comes to our democracy, too, which means deploying technology to economically empower the middle class.
