Airbnb is ahead of its time and has majorly disrupted the Hotel industry, but regulating the company is unwarranted. On October 16, 2016, New York state passed regulation barring most urban apartment-dwellers from renting out their units for less than 30 days if they are not present. The regulation was in response to a report by the New York attorney general that found 37 percent of revenue generated by Airbnb hosts between 2012-2014 came from hosts with three or more listings. To avoid exacerbating the housing problem in NYC, the state government practically banned Airbnb. A spokesperson for the attorney general claimed that the issue received careful deliberation, and that Airbnb was a threat to their taxpayers:

              “They also compromise efforts to maintain and promote affordable housing by allowing those units to be              used as unregulated hotels, and deny communities significant revenue from uncollected taxes, the cost of                which is ultimately borne by local taxpayers.”

Amid the government’s data collection, Airbnb organized an economic survey of their own to convey the direct and indirect economic benefits its service offered NYC. The survey, conducted from 2013-14, found that visitors who used Airbnb not only stayed more nights in NYC than Hotel users, but also generated more economic activity in both larger and smaller parts of the city. Specifically, that the average visit of the 400,000 Airbnb guests between 2012-2013 was 6.4 nights; significantly longer than the average hotel visitors stay – only 3.9 nights, per the report. Over their respective visits, Airbnb guests spent about $880 at NYC businesses, compared to $690 for hotel visitors, according to Airbnb’s report.

Airbnb visitors supported local economies as well. The study found that 82 percent of Airbnb listings in New York were outside the main tourist area of Manhattan. Also, that visitors at these Airbnb listings generated $105 million in economic activity and supported 950 jobs in that year alone” in neighboring boroughs outside of Manhattan.

Although the state government is weary about hosts renting and using multiple locations, the survey found that 87 percent of hosts rent out the property he or she lives in. A typical host earns approximately $7,530 per year from contracting, which is a significant source of disposable income for hosts that do not rely on their Airbnb income to make ends meet, and security for those that do. The survey found that 62 percent of Airbnb hosts require the extra income to efficiently pay off their mortgage or rent, and that 50 percent of hosts are non-traditional workers.

Regardless of the benefits, the unique business strategy of Airbnb has majorly disrupted the Hotel industry; a primary cause for the regulation. A case study in Texas done by Georgios Zervas revealed that “a 10% increase in Airbnb listings was associated with a statistically significant 0.39% decrease in monthly hotel room revenue.” Also that, in Austin, where Airbnb has penetrated the greatest, this has been the case for the last five years. It appears that micro principles have taken their effect, as hotels have been forced to respond to the increased competition through price and occupancy modifications. Zervas’ study found that “a 10% increase in Airbnb supply is associated with a statistically significant (p < 0.01) price decrease of 0.19%.” This increased competition, in the long-run, will force hotels to better identify entrance and exit strategies as well as make responsible investments. The technological trend coupled with changes in consumer’s tastes and preferences has resulted in a much more demanding external environment in the hotel industry, and will force hotels to conduct their business more efficiently.

Despite Airbnb’s disturbance, however, the U.S. lodging industry achieved its highest occupancy in 2015, amidst the height of Airbnb and before the regulation, according to PFK’s Hospitality Research. Specifically, their annual report, the Hotel Horizon, revealed that the demand for lodging accommodations had “increased 25.8 percent since the depths of the recession in 2009, while the supply of hotel rooms grew by just 5.6 percent.” In addition, Zervas suggests in his analysis that Airbnb’s impact on hotel revenue will vary significantly over time. Therefore, the increased competition is not necessarily hurting the lodging industry after all. Instead it may simply be pushing hotels to better identify entrance and exit strategies as well as make more responsible investments. If the economy were to turn, however, hotels in the lodging industry may be hit harder than Airbnb, as more consumers would demand more reasonable prices.

Airbnb reservations have continued to grow despite all-time highs for hotel occupancy. This indicates that Airbnb users may be in an entirely different visitor segment than hotel guests. Per the company’s survey, “Airbnb brings new economic spending to cities from visitors who are price-sensitive and seek a “live like a local” experience they may not otherwise find in conventional accommodation.” For instance, a 40 year old man or woman who is traveling for business is unlikely to change her preferences to an Airbnb reservation. According to the Lodging Industry Report of 2015, 40 percent of hotel visitors were there for business, versus 60 percent for leisure. Therefore, if Airbnb were in the same market as the hotel industry, there would be considerable drops in Hotel revenues in major cities with a strong Airbnb presence. However, this is not the case.

The attorney general’s claim regarding uncollected taxes, as before-mentioned, is not false. Opponents believe that some people abuse Airbnb which has a negative impact on their welfare. However, the economic gains experienced from increasing apartments owned by Airbnb hosts adds more value to communities than do the forgone taxes. Money that would previously go to the government would simply just be directly injected into the local economies instead. This is the main reason that a strong majority of Airbnb opponents in NYC are politicians and government officials with special interests in the state’s large hotel industry. This is further supported by a SWAT analysis by CayenneApps.

In addition, Airbnb is not responsible for the increased homeless population in NYC. Airbnb rentals are significantly less expensive than hotel rooms for the most part. And, as hosts rent more and more apartments, regardless of if they live in them or not, the supply of apartments will increase as well. This will push the equilibrium market price down and allow more homeless people to rent their own apartment, hypothetically. Again, 87 percent of hosts rent out the home they live in. Airbnb has also raised awareness for the homeless epidemic in NYC with its social-good projects.

The pioneering companies of the sharing economy – Airbnb, Uber, TaskRabbit, etc. – have surely disrupted their respective markets, and have completely changed the demands and expectations of consumers. However, outlawing these companies, namely Airbnb, from conducting their business is unjust and serves the interests of the policy community; not the people.

The regulation signed last October has impeded Airbnb in its mission to develop a more sustainable method of tourism, as they lost a vital market for consumers and got mixed up in lawsuits with the state of New York. Around the world, Airbnb takes pride in creating a sustainable, community-based form of tourism. The company has provided significant economic benefits to foreign cities like Barcelona, Spain, Amsterdam, Berlin, as well as neighboring boroughs outside of the tourism central. The company also supports less-developed countries like India, by providing alternatives to the over-inflated hotel prices. Airbnb changed the competitive landscape of the Hotel industry, for the better. Therefore, Airbnb should be fully deregulated in New York, so it could continue to provide substantial economic benefits.

 

 

Why Airbnb Must be Deregulated in New York