Editor’s note: Today’s guest contributor is Braden Cox, technology counsel for the Project on Technology and Innovation at the Competitive Enterprise Institute. C:\spin is a regular feature of CEI.
WASHINGTON,E-commerce can in theory make economic transactions more efficient and less costly and increase consumer choice. However, in practice, old-style regulations are blocking these changes. This scenario is playing out now in the New York real estate market.
Real estate Internet portals can easily connect all the players to a real estate transaction — buyers, sellers, renters, landlords, and brokers. One such site, MLX.com, provides New York City property seekers a private account for managing their apartment search and connecting to landlords, owners, brokers and MLX advisors. Founded by LaLa Wang, a gutsy female entrepreneur, MLX.com empowers renters and buyers to find matched listings that are accessible via the web and instant email services. Internal message centers offer a place to exchange questions and opinions, and to solicit advice. The company performs many of the same services as “traditional” real estate brokerage companies — consultation and negotiation assistance — but it does not show properties.
The web site is especially welcome in New York City, as it is the only major market in the U.S. without a Multiple Listing Services (MLS), a cooperative database where brokers list properties for sale and split commissions with buyer agents.
Practicing without a license
But the state of New York requires all companies that furnish information about location and availability of rental property to obtain an “apartment information vendor” license. The licensing law is a 1975 statute originally enacted to prevent consumer fraud. Laudable intentions aside, the law’s requirements — hard copy contracts and escrow agreements, submissions of available listings from landlords in writing before distribution, mandatory refunds on request, and a ban on advertising of specific properties — are incompatible with the 24/7 convenience, consumer control, and lower costs of online, subscription-based information services. The law’s clash with e-commerce has been the bane of existence for Ms. Wang and MLX.com.
To state Supreme Court
In its efforts to force a square peg into a round hole, the New York Department of State revoked LaLa Wang’s real estate broker’s license and is trying to shut down the online service. She has refused to apply for the apartment information vendor license because she maintains that the statute does not apply to her online venture. And now she has taken the issue to the New York Supreme Court with oral arguments scheduled this week.
The case of MLX.com exemplifies how some old laws simply do not fit when applied to new business models. The apartment information vendor law is an antiquated relic that has found a newfound purpose — protecting the entrenched, deep-pocketed industry that controls the country’s most lucrative real estate market. Ironically, in trying to enforce a consumer protection statute, New York’s state government is hurting consumers by enforcing a law that hinders innovation.
“New economy” is not just a trendy buzzword phrase. Today, “old economy” economic regulation shields established industries from having to adapt to new and better ways of doing business.
Under the rationale of protecting consumers, regulators have enacted rules making illegal the online purchase of wine, contact lenses, and even caskets. Texas, at the behest of car dealer trade groups, stopped Ford Motor Co. from marketing used cars on the web — despite the potentially huge savings to consumers. Last year, the Federal Trade Commission hosted a workshop on the anticompetitive efforts of states to restrict Internet competition, and a House subcommittee held a hearing on whether state impediments to e-Commerce were valid consumer protection measures or merely veiled protectionism.
Courts often overturn these types of protectionist laws on constitutional grounds. Let’s hope that Ms. Wang wins her fight with Albany — and sets a precedent against anti-e-commerce legislation in other jurisdictions. Too many regulations have the effect of unfairly protecting existing brick-and-mortar businesses against Internet competitors.