Key to their strategy was actually providing the public with something most people actually wanted, regardless of legality. Very few lawmakers want to aggressively go against public sentiment just because the law says they should.
The people who want the service are not necessarily the same as the people who are affected by the externalities of the service.
Everyone loves having AirBnb available to expand selection in NYC when they visit, but how many New Yorkers who aren’t AirBnb hosts love having tons of short term rentals in their building?