Water Runs Downhill: Edition XXVI: Airbnb and Hotel Prices

WashPost: A hotel executive said a recently-passed New York law cracking down on Airbnb hosts will enable the company to raise prices for New York City hotel rooms, according to the transcript of the executive’s words on a call with shareholders last week.

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Without data-driven heavy-duty econometric analysis, this is just so much theory. Don't you want economics to be a science like the big boys?

Exactly. The law may raise hotel prices but simultaneously lower the price for long-term apartment rentals. Tabarrok is implicitly favouring tourists and owners of NYC real-estate over people looking to rent apartments in the city.

By that logic, we should also outlaw roommates because, when unrelated people share multi-bedroom apartments, that leaves fewer apartments for families. (Or, is it the other way around: we should prevent single families from occupying housing to ensure that there is enough for singles wishing to share apartments?) Maybe, we should favor neither singles nor families and let markets do their work in allocating housing just like everything else.

AirBnB is just another roommate situation: sharing an apartment across time rather than across space.

Oh I'm not saying anything about outlawing AirBnB. I would almost certainly use it myself if I ever left my apartment - which I essentially haven't since 1995. My issue, as always, is with Alex's particular framing of the argument.

If it's so obvious that increasing supply lowers prices, why do you agitate for open borders and ignore the similar point that increasing the labor supply lowers wages?

Perhaps because open borders *also* implies an outward shift of labor demand? Making illegal thousands of rentable rooms on the market implies no such thing.

Well it's not so much "making" illegal as strengthening the enforcement mechanism for something that was already illegal.

That's because making illegal rentable rooms lowers the supply of rentable rooms on the market, increasing the price of rentable rooms. Just like lowering the supply of labor on the market increases the price of labor i.e. wages.

increasing labor (ie people) also increases demand for other things those people will buy. Could be a net lowering of wages, but isn't necessarily so.

Purchasing a home in a neighborhood zoned single family only to discover that "hotels" are being operated by neighbors can come as a shock. In the Florida panhandle beach communities, it's a war zone among neighbors, as those who purchased expensive homes in a neighborhood zoned single family resent the congestion, noise, and transients staying in the house next door. Indeed, in my low country community, it's common for two, three, four, or five families to rent a house for a weekend or a week, with three, five, eight, ten cars parked in the driveway and street, and a dozen or dozens of occupants using what was once a residence for one family. Of course, those who are violating zoning laws and other laws are moochers as well, paying insurance rates based on personal use rather than higher rates for commercial uses. Tabarrok may believe such chaos and law breaking is a fine thing, but it's not so fine for those who expected to reside in a single family home among only single family homes.

Nothing has changed about the houses. They're still detached houses. You just don't like people.

"You just don’t like people" taking advantage of the money and work you and your neighbors put into your neighborhood to make it attractive.

The AirBnB hostess I know tried to leverage her Morningside Heights, Manhattan apartment into a Greenwich Village Café society life of leisure.
I felt she should have tried working instead of floating.

When I live in a house I do not feel I have ANY right to direct change the career choices of those who live near me. You say "Greenwich Village Café society life of leisure" as if you are envious of mentally harmed by this attempt on the part of the AirBnB hostess. I am making that up I admit. I don't know what emotion you are feeling. However, I do believe you will be happier if you can be accepting of(even grateful for) peoples desire for a lifestyle different than your own.

Let me guess....do you vote for one of the "two" dominant political parties in this country?

Gabe Harris

Moochers because they don't have insurance for commercial activities? So if their house gets damaged they won't be able to file a claim and that makes them Moochers? Uh.

When you buy property in a neighborhood how much say should you have over what goes on there on property to which you have no title? How far does your neighborhood extend? Should you be able to negate legal activities that you simply don't advocate?

"Should you be able to negate legal activities that you simply don’t advocate?"

Why do you think local zoning, planning, and historic preservation committees are so contentious?

The law doesn't just outlaw over-occupied housing; it outlaws the owner/tenant allowing someone else to occupy the housing in his place. Other ordinances already deal with over-occupation as well as noise.

Homeowners associations will likely start to dictate rental rights up front so that home buyers must consent or look elsewhere right off the bat. As it stands, the problems you have could stem from a neighbor simply having frequent parties, and you already have homesteaded rights on parking space and noise. If you value constricting your neighbor's ability to rent their home out for its own sake, go negotiate a contract with your neighbor to make them stop.

Seems that if you're going to acknowledge, as Liz Krueger does, that " companies like Airbnb have encouraged illegal activity that takes housing off the market and makes our affordability crisis worse" then you also have to acknowledge that local land use restrictions "prevent housing from coming on the market and make our affordability crisis worse." And yet, folks making the first argument never seem to make the second.

Because they're not making an economic argument. It's "argumentum ad hoc" - using whatever plausible-sounding point comes to hand. There's no economic principle that they consider to consistently apply, it's just rhetoric. I've been through two degree programs in urban geography, and I would say 90% of the students and most of the faculty did not know what a demand or supply curve is, or what prices had to do with either of those, except as a vague collection of folkloric narratives about things like "gentrification". And these are the people who end up writing about urban issues for, say, major newspapers.

I know that economists are not exactly "numbers people" but you should know that XXVX is not a Roman numeral.

Fixed!

OK, no one has total freehold. Developer, condo operator can put in any restrictions they like and sell for less money.
But if airbnb (not, despite the hype, the biggest hotel corporation) can reduce room rates across the board, this has positive externalities.
Tourism fosters understanding and good will. Lower hotel rates foster more more trade as companies find it worthwhile to send their employees on marketing tours.
I don't actually like these outfits, but I do think they are probably a net positive.

"Tourism fosters understanding and good will. "

Maybe for the tourists. For the locals, it usually works the other way.

"For the locals, it usually works the other way."

*Shrug* Don't live in a tourist destination if you don't like tourists.

Tell that to people who have to live in D.C. Also, you might have to live near a tourist destination, but you bought a residence in a non-tourist part of town. Now, thanks to Airbnb, there is no such thing.

Why is there an assumed legal right to influence property owned by others. Is there some implied externality effecting residents near air bnb users? The simple act of renting out one's house is between only the owner and renter. If the renter then takes actions which violate someone's property that's a separate issue which requires enforcement of existing laws regarding noise, easement...etc.

Why is there an assumed legal right to influence property owned by others.

They are called zoning laws. It's the reason I can't buy your neighbor's house and build a car factory there.

Is there some implied externality effecting residents near air bnb users?

It's not just implied. It's very real. Short-term renters don't care about annoying the neighbors.

Yes...by that you mean "your fault for wanting to live near anywhere remotely interesting or beautiful". The veneration for life in shitholes is strong on this blog.

If you're in a tourist CITY it's one thing, because being in a tourist CITY means there's lots of stuff to do that's worth being there for, and many times of year when there are fewer tourists to share access with, and much more importantly, the tourists are fewer in number so it's not like 50% of the people you meet on your average day out are tourists.

Living in a tourist TOWN is totally different. You know everyone in town, so you KNOW when you sit down that half, 2/3, 9/10 of people on the street, etc., are not from there.

It's not obvious to me that tourists are, on average, presenting instances of serious assholes compared to the general population. It's mostly that this is the only time of the year for most people when they can sit back and give orders for more than one coffee or dinner at a time, and maybe after a few days it starts to go to their head. Most people are constitutionally less smack-in-the-face-able and are able to rapidly restrain such tendencies and be even nicer to tourist servers than otherswise, perhaps in realization that things are more pleasant for YOU when YOU are less of an ass. Sadly, some people are such pathetic losers and/or with so little actual control in their own lives that these petty holiday days lead them to be .... "that guy".

And, internationally speaking, "that guy" is rather like to be American. I'm thinking middle class, among which there are many mnay millions of data-points annually, not the ultra elite, whose offensive character (if any) can at least be explained by the ability to give people enough money to tolerate it, which most people can only do in increments of hours or days at a time (aka, a nice dinner or short holiday) and so don't become so used to it.

AirBnB sells heartwarming stories on how a widow rents an empty room and gets additional income. But, I think it's not OK to make a comparison today between AirBnB and hotels because AirBnB is not mature enough. Prices are cheaper than hotels, but are they sustainable? As an AirBnB customer, I've encountered desperate hosts sub-renting a room on the platform at a ridiculous cheap price. They have the illusion of easy income but how long they'll keep offering low prices? Landlords using directly AirBnB are happy until they need to call the cops to get out the crazy one from the apartment. If you are an AirBnB client, the probability to encounter a crazy landlord is low, they get destroyed in reviews. But as landlord,renting to 30 or 50 different people a year you end up with a psycho customer. Tenant screening exists for a reason. There's a reason why landlords are into real state and not hospitality in first place...risk aversion? They don't want to work that much?

AirBnB also offers another heartwarming story about eliminating intermediaries, but then you have Guesty, Citi CoPilot, Pillow, SkyBell, KeyCafe, Proprly, Smart Host........additional business that basically try to replicate the function of a hotel front-desk and regular cleaning service for landlords offering many rooms at AirBnB.

So, before saying AirBnB is better than hotels it would good to let AirBnB ecosystem mature and see what happens. My layman prediction is that low prices are just an illusion, if AirBnB + front desks providers are a sucess, forget about the widow renting the extra-room and welcome the 1K room manager with prices equal or higher than a conventional hotel. It's much more difficult to manage a hundred rooms scattered across town instead of having the hundred rooms in a building, just what we call a "hotel".

Everything you say is possible but both consumers and producers (home owners in this case) will still have the sovereignty to make these decisions for themselves. Prices will respond accordingly. If there's a quality/price tradeoff, that isn't a problem. If it were we'd have to make motels illegal too. Keep in mind in this case "quality" may refer to general tenant quality as well.

The little old lady can still rent out her empty room for a month on AirBnB. NYC is cracking down on people who broke zoning laws by turning residential housing into hotels.

AirBNB means half the decent budget accommodation near city centres in decent places is gone. I probably have to walk about 30 minutes further to get downtown at the same price as a result.

And in the meantime, no one is building hotels because of AirBNB competition, and so the sorts of places you can walk in with ID and just get a room are increasingly booked long in advance.

And meanwhile, the whole situation increases the appeal of scammers, who now account for about 30-50% of all online postings for accommodation. But now police do not investigate unless a certain dollar value is exceeded, meaning that they literally have a policy to do nothing if someone runs off with your money in such a situation, even with full documentation of who they are and all the rest, unless the dollar value is large enough. And then we wonder why there is such a thing as poor people with no respect for the police, who believe that society fails them, that they do not receive the same benefits, services and protections as others in society. How on earth could people possible every arrive at such a perspective?

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