The term that's involved in this is "externality": costs that are imposed on people not involved in the actual transaction (use of the place for payment).
You rightly point out, that, for instance, in a crowded apartment building, having something like a dynamite storage facility would probably be a bad idea.
However, other things might be annoying too, such as having children or pets or noisy sex, so you have to 1) get an idea of the actual costs involved, and not just "well, this could happen", and 2) see if there's a framework where people could regulate/resolve their differences on a more local level. Perhaps in some buildings, people would be ok with some AirBnB traffic if they get a small cut of it. The idea being that the more global the solution, the more likely it's going to be inefficient.
At some point, the cost of adjusting for the externalities will erase the savings of AirBnB. Which would indicate that the much of the "benefit" of AirBnB simply comes from not paying for the externalities.
Beyond the neighbors, there would also need to be city taxes to pay for the regulation and oversight of the rental (and fire inspections, etc), and the use of city services by visitors (who probably don't pay income taxes in that city.) Basically, "hotel tax", which in some places is 20% or more and right now you don't pay when using AirBnB.
Not to mention additional liability insurance, as you can bet that the level of risk incurred by someone doing short-term rentals is much higher than a normal homeowner -- so they shouldn't be in the same risk pool.
I recently stayed for a few days in an AirBnB room while my wife and I were in New York. A comparably nice hotel room in the same neighborhood would have run us a minimum of $350 a night; the AirBnB room was $110. While I certainly believe that some of the "benefit" of AirBnB comes from not paying for externalities, it stretches logic to believe that those externalities account for $240 a day for two people in one room.
Isn't that less the externalities than the pool of folks using the existing hotel infrastructure (bending supply/demand) rather than exploring AirBnb/couch surfing/etc. I imagine if business travelers and tourists used AirBnB en masse, the prices would more closely approach that of traditional hotels... But with hosts that're less dependable.
There's a clearing price for hotel rooms in NYC based on the built number of hotel rooms. If everyone viewed airbnb and hotels as fundamentally interchangeable then the range of prices for airbnb units would be similar to the range of prices for hotel rooms at that time - but this would be lower than the current range of prices for hotel rooms, as the supply of available rooms will have increased.
Having said that, I think the airbnb market in NYC is reasonably close to clearing with the hotel market. Probably some listings for very nice apartments and also some for relatively mediocre apartments are underpriced, but the truth is that a night in a decent airbnb apartment is in general commensurate with the cost of a hotel room in the same neighborhood.
The catch, of course, is that there are many airbnb listings in places without hotel rooms at all - Harlem, the far Upper East Side, etc - and in those areas the airbnb prices appear low but of course we don't know the appropriate hotel room clearing price.
But to your basic point, I agree there's probably some discount right now for the general sense that airbnb is "weird" or "idiosyncratic" to the average traveller.
I’m sure there’s a large component of what you say to it, but that suggests that grandparent’s comment:
> the cost of adjusting for the externalities will erase the savings of AirBnB
is false, which is more or less exactly what I’m trying to get at too: it is not unreasonable to expect that AirBnB will continue to be cheaper than hotels even if externalities are priced in.
As for hosts being less dependable, I’m sure that happens, but the few times I’ve used AirBnB, I’ve been quite pleased. By contrast, it seems like more than half the time I check into a hotel, something is amiss or the room isn’t ready by the time it was promised, or ... something. There are exceptional hotels with great customer service, but most hotels are borderline terrible in my experience.
That assumes that the hotel room and the AirBnB room were comparable in terms of amenities and services, which they probably weren't. (Room service? Daily cleaning? Gym? Doormen/porters?) You can get a pretty nice hotel in NY for $350 a night -- the W hotel downtown has rooms for $359 this weekend.
I'm not saying there aren't great deals out there on AirBnB; right now it's a market of people basically selling unused inventory at very low prices. I'm saying that if they had to incur more normal requirements (safety, taxes, insurance), the pricing would rise and the inventory would decline. If that same AirBnB room cost $250, it might not as interesting to you.
Some of the benefit is certainly from skirting regulations, but I can see some big benefits to accessing a much wider range of options, too, so there might well be a place for AirBnB even if it were taxed/regulated a bit more, rather than simply banned.
That's fine, but it's unproven that the AirBnB market works at all if renters have to pay 20%+ hotel taxes and apartment owners have to pay income tax. It would both raise the effective rates and greatly decrease the received benefit to the seller -- there might not be a clearing market any more. I'd consider renting my spare room for $100 a night, but not for $40.
I doubt it. Landlords have to count rent as aggregate gross income on their tax returns, and it's probably both fairly easy to get caught and fairly serious if you do get caught.
Much of what we consider to be profitable, high-growth business is about taking advantage of market failures. E.g. the advertising industry that bankrolls the internet is basically about taking advantage of cognitive biases to get people to make irrational purchasing decisions. Part of the success of e-commerce is due to the heroic efforts of UPS, etc, in reducing the cost of shipping over the years to make e-tailing cheaper than brick and mortar retailing, but a big part is also arbitraging on state sales tax laws.
This is not a moral judgment (I'm too old to make moral judgments). Fact is that purely competitive markets suck because there is no money in them (there's no high growth startups in the dairy industry, even with extensive government subsidies to offset the effects of vicious competition). A good fraction of the opportunities to make money are based on things like arbitraging regulations or exploiting market failures. Much of the rest involves focusing on markets with little competition (either because it's new or because others don't have the skills to target them), but I think people underestimate how much activity is in the former bucket. E.g. with AirBnB: are they in business because nobody thought to do what they're doing before, or because people thought about it before but realized it was illegal?
Chobani is unusual in that it brought a different product to the market that was objectively better. There are other new players in the dairy industry, but a lot of that action is applying lifestyle marketing to food products (e.g. getting people to pay more for trendy food when they could get the same food for much less without the lifestyle brand). Think about stuff like flavored water--a product that couldn't get more fungible that exists because marketing makes it seem non-fungible.
Looking at my comment, the last bit looks sarcastic. I actually meant that I thought you might be thinking more of milk production and less about processed diary.
Anyway, I'm not sure 5 of them would really weaken the point you were making.
Converting externalities into profit isn't necessarily taking advantage of market failures. It may just be _creating_ market failure and taking advantage of them.
Let's say all of the restaurants in your neighborhood have to charge extra because of the cost of commercial garbage service. And you start selling food cheaper, because you're putting your garbage into the household trash and passing on the savings. Yes, that's a business, but it's basically just breaking the rules and passing some of the savings on to customers.
Yes, finance is heavily subsidized, but so are many other major industries. The tech industry is also heavily subsidized, by design, and is indeed one of the original recipients of such subsidies. Many of the land-grant universities founded in the 1800's were specifically designed to train engineers to go into what was the high-tech industries of the time. Crossing the line from providing people a general education to specifically training people with the skills relevant to a particular industry and thereby reducing that industry's training costs is a form of subsidy, one that continues to this day.
That might be true if your worldview started and ended at the edge of NYC. For the rest of us, AirBnB is used across the country in suburbs and less populous cities.
If you have a two family house and "air out" the second apartment, how exactly is that converting externalities into profit?
I'm not sure a densely populated city should really make any objections to externalities.
There are still a lot of externalities that people are cutting corners on, even in the suburbs: proper insurance (by not declaring that you're acting as a hotel), tax (by not declaring airbnb income on your income tax), safety regulations (fire extinguishers, smoke alarms, floor plans etc).
Not that all these laws make sense for airbnb, but by not respecting them you're "unfairly" undercutting hotels.
That would only apply to specific airbnb stays which cause negative externalities like discomfort to other apartment residents. Do you really think that this is a measurable problem?
I don't. I think that hotels are just pissed because airbnb provides a fairly thin layer of technology that allows property owners and renters to use their property more efficiently (by having it occupied more often) and therefore threatens the very core of their business.
It's the same story with taxi drivers opposing ridesharing services. Does anyone really think that taxi drivers are mad because they're worried that these new services will provide a less safe or comfortable experience to passengers, which is supposedly the point of taxi regulations? Nope. I think they're mad because ridesharing services allow more efficient use of automobiles and therefore threaten the very core of the taxi industry. Any bets on what taxi drivers will think about Google's automated cars when they start offering shuttles for hire?
If we want to talk about externalities, we should at least recognize the possibility (and, I dare say, the near certainty) that many government regulations themselves have considerable negative externalities.
Pointing out the existence of externalities is not sufficient. You need to show why government (loosely defined here as an organization with a well-accepted legal monopoly on the use of violence to resolve conflicts) will lead to fewer negative externalities than other means of conflict resolution.
http://en.wikipedia.org/wiki/Externality
You rightly point out, that, for instance, in a crowded apartment building, having something like a dynamite storage facility would probably be a bad idea.
However, other things might be annoying too, such as having children or pets or noisy sex, so you have to 1) get an idea of the actual costs involved, and not just "well, this could happen", and 2) see if there's a framework where people could regulate/resolve their differences on a more local level. Perhaps in some buildings, people would be ok with some AirBnB traffic if they get a small cut of it. The idea being that the more global the solution, the more likely it's going to be inefficient.