Airbnb Economics: The Good and the Bad

Airbnb is one of the most successful of the tech platforms that allow participants to earn money providing a service to others.  Like many tech companies, it grabbed a place in the economy by the strategy of breaking rules and ignoring laws, claiming it was something new and beneficial to society, so it deserved special treatment. The service in Airbnb’s case is the provision of one’s residence for short-term use.  Typically, a visitor to a location will bypass commercial lodging for a better bargain by renting a person’s dwelling for a few days.  Airbnb facilitates these types of transactions.  It has become a world-wide player, raising many questions about its social consequences in the areas in which it operates.  A study produced by Josh Bivens for the Economic Policy Institute addresses these concerns.  It was titled The economic costs and benefits of Airbnb.

Bevin concedes that both sides in the financial transaction can benefit economically.  The provider of the lodging earns extra money, while the traveler can save money on lodging costs by getting a lower price than available commercially.  His major issues are with the external costs imposed on society as a whole by these transactions. 

One tends to think of a financially stressed person earning a few extra dollars to help with the bills, but the popularity of the model has led many to create a perversion of this concept.  If an individual can earn money this way, then those who have the wealth to control a number of dwellings can earn even more money.  Airbnb is becoming less a tool for the financially needy and more a vehicle for the wealthy to generate income and often avoid the fees and taxes associated with what, for them, is a commercial business.

“…many Airbnb listings are actually owned by households with multiple units to rent… any economic occurrence that provides benefits proportional to owning property is one that will grant these benefits disproportionately to the wealthy…”

People who possess multiple dwelling units are best able to utilize the Airbnb platform, but in so doing, they are removing units from the general housing market and helping drive up housing costs for everyone.  Studies have documented this effect in major cities.  Saving money on travel costs, which are a small share of people’s expenses, is not a wise investment if at the same time housing costs, which are a major fraction of household expenditure, are being driven upward.

Studies indicate that Airbnb does not generate additional visitors to the communities in which it operates.  There is no net new business generated, but the diversion from commercial lodgings to Airbnb weakens those entities as payers of taxes and fees, and providers of employment.  Any loss of tax revenue will usually be felt by the neediest within society first.  If not properly regulated and taxed, Airbnb becomes yet another vehicle by which funds are taken from the poor and passed on to the wealthy.

Airbnb also provides a mechanism for negating zoning laws that prohibit commercial enterprises in residential areas.  Those regulations were generated to protect the property values and lifestyle of the residents.  Any degradation in neighborhood conditions from short-term rentals to people who have no commitment to preservation of the ambient lifestyle could cause diminished property values.

“When owners do not reside in their residential property, this can lead to externalities imposed on the property’s neighbors. If absentee owners, for example, do not face the cost of noise or stress on the neighborhood’s infrastructure (capacity for garbage pickup, for example), then they will have less incentive to make sure that their renters are respectful of neighbors or to prevent an excessive number of people from occupying their property.”

“In cities where the spread of Airbnb has become a political issue, hundreds (if not thousands) of complaints have been made in this regard.”

Bevins provides these summary comments.

“The current policy debates sparked by the rise of Airbnb have largely concerned tax collections and the emergence of ‘mini hotels’ in residential neighborhoods. At its inception, Airbnb advertised itself as a way for homeowners (or long-term renters) to rent out a room in their primary residence, or as a way for people to rent out their dwellings for short periods while they themselves are traveling. However, in recent years Airbnb listings and revenues have become dominated by ‘multi-unit’ renters—absentee property owners with multiple dwellings who are essentially running small-scale lodging companies on an ongoing basis.”

“This evolution of Airbnb into a parallel hotel industry raises questions about the preferential treatment afforded to this rental company. These questions include, ‘Why isn’t Airbnb required to ensure that lodging taxes are collected, as traditional hotels are?’ And, ‘Why is Airbnb allowed to offer short-term rentals in residential neighborhoods that are not zoned for these uses, while traditional hotels are not allowed in these same neighborhoods?’”

His conclusion is that there is nothing “special” about Airbnb.

“No reason for local policymakers to let Airbnb bypass tax or regulatory obligations.”