Airbnb And The Unstoppable Rise Of The Share Economy
forbes.com
forbes.com
In the short term, this seems like (and may indeed be) a positive trend - people are able to squeeze into better quality apartments than they otherwise could have. But in the medium term, as we now see in SF, market prices simply rise to account for this "new normal" behavior. Unintended consequences follow. First, someone who is not willing to open their apartment to part-time airbnb'rs is now at a disadvantage. Second, at least part, and perhaps most of, the extra airbnb income is now passed on to the landlords in the form of higher rental prices.
Remember it doesn't matter how much money you have, it only matters how much money you have relative to other people who want the same things you do.
Either way, just wildly saying that without any substantial evidence is pretty weak.
Seems like we have a problem with rent control there. Many landlords won't rent in SF because of rent control. They want tenants who leave regularly to take advantage of the rising prices. Not sure whether it's cause or effect, but I just think there's clearly more influential factors than Airbnb here.
"One notable finding is that Airbnb hosts renting out their homes are generating income that is crucial to them staying in the place they live. About 60% of the hosts in the survey had an income less than San Francisco’s median income. About 14% had an annual household income below 14% and another 27% were between $40,000 and $70,000. So for these hosts the extra income is very substantial."
and if there's any doubt remaining, let's ask the head of public policy at AirBnB for her opinion:
"'Hosts really use Airbnb to make ends meet,' says Molly Turner, head of public policy at Airbnb. 'One of the findings that most surprised us is how important Airbnb is to hosts. It’s really helping them through tough times.'"
http://www.forbes.com/sites/tomiogeron/2012/11/09/study-airb...
That would be the most misguided blame possible. Landlords don't raise prices because they are bad (and they don't lower prices because they are nice guys), the immense majority of them just follow the market and set the price to what people are willing to pay.
http://www.forbes.com/sites/afontevecchia/2012/12/12/qe4-is-...
QE4 is here. Only a few months after announcing what had
been dubbed QE3, an open-ended $40 billion a month program
to buy up mortgage backed securities (MBS), the FOMC
decided to extend its asset purchases in 2013 as Operation
Twist expires. Combined with QE3, the Fed will be taking
$85 billion in bonds, both Treasuries and MBS
Michael Sandel, author of What Money Can't Buy, argues pretty eloquently the economic and social cost-benefit to pricing things like a placement in line, or a spare room in a house.
To extend one of his examples, Airbnb gives you a hard-cash price for your extra room—or even your couch. One of your friends wants to couch surf for a week.
By past social convention, you'd give it to him for free. He saves money he'd spend on something else.
By Airbnb convention, you charge him for it. You kind of have to, because everyone else is, and you can't leave money on the table. You have cash now, but a bit less than he would have, because Airbnb takes a cut.
Sandel was interested in investigating this society where the rich get the best of everything first, explicitly at the expense of the poor.
So I hope there are some comments investigating whether or not we're better off socially, not necessarily economically, by renting our "excess capacity" or being generous with our "excess capacity."
While I agree that perhaps in a better world everyone should simply share resources unencumbered by profit motive, the assignment of a usage fee to a couch or something does help prevent overuse of resources.
In the case of a friend sleeping on my couch, there is our personal relationship and desire not to cause future trouble that helps limit the possible risk of the couch getting destroyed--having a pecuniary barrier to entry for a stranger to use my couch seems reasonable.
Just because it is not rational does not make it any less real. You don't negotiate with a hurricane. If you are weighing the pros and cons about renting stuff out to a friend, then there are some deeper issues involved. Is this particular friend widely known for mooching off of you? (Why is such a person your friend anyways?) Generally, if you fear abuse of your assets and personal space/time, then you also have some Jungian shadows related to abusing your friendships.
Renting something out to strangers and taking money to mitigate risk -- that seems fair to me. (But risk is emotionally related to the same kinds of issues related to renting or not renting out to a friend, or a friend abusing or not abusing your generosity).
There are ways to deal with the underlying non-rationalizable emotions that does not involve money. Hopefully, those methods will become more popular going forward.
It's interesting. I have never considered this before. Conducting transactions like this means stripping away the impersonal nature of corporations (http://onthespiral.com/unifying-value-universe), makes you much more aware of human nature, maybe gets people to start dealing with it.
Consider also http://playspent.org ... It turns out: a social net is very advantageous. (http://www.amazon.com/Dont-Need-Rise-Network-ebook/dp/B009K8...)
Learning about waste != creating waste, any more than learning about employee theft is responsible for draining the company's resources.
Btw, you're being generous (or not) in both cases; the only question is just to whom you're being generous: the friend, or the strangers ready to put significant money down for the scarce resource.
This kind of economy is here to stay, and it will probably become the norm in many other sectors too. It will be interesting to see the long term effects in the general economy.
By past social convention, you'd give it to him for free.
He saves money he'd spend on something else.
Smith didn't envision massive corporations making money by having the government pass favorable legislation, he envisioned many small players making a decent living through competition rather than rent seeking.
To take it slightly off topic, the banking and finantial sector could use some lowering of barriers to entry. Banks aren't bad, but banks that are too entrenched are. What sort of lower barrier could you set so that there could be 'mom and dad' banks?
AirBnB et cetera lower the transaction costs and remove barriers to entry.
To me, the biggest problem with the rise of AirBnB is in areas that have tourist appeal but are mainly populated with long term residents. People used to occasionally rent out their place, or just let people stay there for free, but there was almost always some kind of social connection.
The removal of friction has allowed this to become far more widespread. I personally believe that it most definitely has the capacity for harm.
I remember hearing about one incident recently in the california wine country where there are some fruit trees on a public easement. Mostly residential, but lots of appeal to tourists. The neighbors shared the trees as a commons, they'd take a bit, but leave plenty, and would informally contribute time and money to maintenance. One day, the trees were stripped, completely, of any fruit. It turned out that a couple of people renting a nearby house had stripped the trees. The house, which had formerly been occupied by a family with kids, was now a full time vacation rental (at great profit for the owner) and was advertising "fruit picking in the alleyway" as one of the wonderful activities available to short term renters.
I know I risk sounding very trivial here, elevating little neighborhood squabbles about crab apples all out of proportion, but I think the story I heard really gets at the problem. Long term residents, to use a vulgar expression, have to sleep where they shit. Short termers don't. The non-legal self-corrective mechanisms that used to provide social harmony, things we weren't even aware of, may be badly disrupted but a very large number of short term residents. We're all willing to (or should be willing to) tolerate the occasional loud backyard party next door. But would we want to have that go on every night, all summer, from vacationers looking to maximize their fun? All of a sudden, we're using the law to regulate something that used to be managed less formally. The law is a terrible tool, way worse than just talking to your neighbors, but when you have a new neighbor every three days,it may be all you've got.
And even when the short term vacationers are on their best behavior, there is still a loss. There is also absolutely a loss when families who would like to know and socialize with long term neighbors, especially with children, start to get pushed out because they can't compete on price with people who plan to airbnb the crap out the old neighborhood. I don't have a link to this, but I read once that an economist estimated that good relations with the neighbors were worth about $50,000.
I remember PG writing about how new forms of property come into existence with new technologies, just as old ones can go away. We may only become aware that there was this vaguely defined property we owned now that airbnb has found a way to cash in. I really do think that the owner of many of these VRBOs are selling the neighborhood rather than the house itself, and they're harming the neighborhood in the process.
I'm more than ok with some use of airbnb, and obviously it opens up new benefits as well. But I think it is very reasonable for communities to strongly resist widespread short term rentals in their neighborhoods.
http://www.theatlantic.com/magazine/archive/2008/07/american...
American Murder Mystery
Why is crime rising in so many American cities? The answer
implicates one of the most celebrated antipoverty programs
of recent decades.
...
About six months ago, they decided to put a hunch to the
test. Janikowski merged his computer map of crime patterns
with Betts’s map of Section 8 rentals. Where Janikowski saw
a bunny rabbit, Betts saw a sideways horseshoe (“He has a
better imagination,” she said). Otherwise, the match was
near-perfect. On the merged map, dense violent-crime areas
are shaded dark blue, and Section 8 addresses are
represented by little red dots. All of the dark-blue areas
are covered in little red dots, like bursts of gunfire. The
rest of the city has almost no dots.
Betts remembers her discomfort as she looked at the map.
The couple had been musing about the connection for months,
but they were amazed—and deflated—to see how perfectly the
two data sets fit together. She knew right away that this
would be a “hard thing to say or write.” Nobody in the
antipoverty community and nobody in city leadership was
going to welcome the news that the noble experiment that
they’d been engaged in for the past decade had been
bringing the city down, in ways they’d never expected. But
the connection was too obvious to ignore, and Betts and
Janikowski figured that the same thing must be happening
all around the country.
But the gov't wouldn't be interceding in the minutiae of a dispute between neighbors here, they'd be creating and enforcing legislation around minimum lease duration, which I think is a much less objectionable role for government.
But the gov't wouldn't be interceding in the minutiae of a
dispute between neighbors here, they'd be creating and
enforcing legislation
If you don't want AirBnB rooms nearby, (a) talk to them, (b) talk to your landlord, (c) move, (d) look on a map to see whether AirBnB rooms will be rented nearby.
Most people in SF, NYC, or the Valley don't even know their neighbors. A large NYC apartment is like a hotel anyway, there might be 1-2 faces you'd recognize in the elevator but that's it. These fears have zero stats behind them while the USG moving in murderers next door unfortunately has plenty of statistical backing.
You left out option e) urge your representative in government to limit short term rentals, and once this laws are in place, bring a civil lawsuit or take some other legally coercive measure if your neighbor refuses to comply.
That said, I would prefer to see these laws kept as local as possible, and many communities will be perfectly happy to allow short term rentals, as it will provide them with a new way to profit from their property. I'd agree that if a local district decides to allow AirBnBs to proliferate, and you aren't happy, then you must move - preferably to a place that doesn't allow them. You will accept that restriction in exchange for the benefits you believe it brings you.
Keep in mind, there's a strong undercurrent of libertarianism that supports heavy decentralization rather than zero regulation across the board - you just have to promise not to try to impose your will on the next township over.
e) urge your representative in government
I also see absolutely no reason why supporting regulation
of short term rentals somehow commits you to supporting a
failed section 8 program, other than that the government is
involved in both.
The idea that new laws will solve a problem is the fundamental fallacy. Who is enforcing the laws? What is their track record on other problems? And so why do you trust them?
Geebee is correct, the vacation rental issue is real in vacation destinations. Unregulated B&Bs were always an issue, but AirBnB just makes it easier for others to do the same.
Second, nobody thinks that Section 8 doesn't increase crime in nicer neighborhoods. The rationale is that spreading out the poor families via Section 8 reduces overall crime in the city versus concentrating them into the projects.
I used to live in one of the most expensive neighborhoods in Chicago, and many of the surrounding high-rises took Section 8 residents. While I'm sure they raised property crime slightly in the area, I think most people preferred that state of affairs to having the Cabrini-Green projects next door.
they raised property crime slightly
nobody thinks that Section 8 doesn't increase crime in
nicer neighborhoods
So: given that it is still official US government policy to increase the murder rate in middle class neighborhoods (Section 8's budget was raised to $19B in 2011), exactly why should anyone believe other government housing regulations would promote the common welfare?
As for mid-size cities? Look at the cities on that list and see what happened to their Hispanic immigrant profile over the last two decades. The article makes no attempt to factor out that phenomenon.
Section 8 is a solution to a problem that has no good solution. Segregation is worse--it destroys economic development in the ghettos and its not like those people can't go up to the nice neighborhoods. Moreover, it's not like people who live in Chicago want to take the suburb route and move to the suburbs, separated by distance so the poor minorities can't reach them.
I'm a little irritated with myself, because I actually referred to it as a sharing site in an earlier comment.
While there can be some ambiguity around the word "sharing", this one is not a tough call. Airbnb is a commerce site, it absolutely is not a sharing site.
First of all, the anecdote of the stripped fruit tree is irrelevant to your argument. Better services than AirBnB have had worse horror stories. In fact, even AirBnB itself has had worse (http://techcrunch.com/2011/07/29/airbnb-victim-speaks-again-...).
"All of a sudden, we're using the law to regulate something that used to be managed less formally. The law is a terrible tool, way worse than just talking to your neighbors, but when you have a new neighbor every three days,it may be all you've got."
The law is not a terrible tool, and short-term vacationers or not, I'm sure you can still talk to them. Noise pollution is unwanted whether it comes from your neighbor or a stranger. You make it sound so terrible lol.
"There is also absolutely a loss when families who would like to know and socialize with long term neighbors, especially with children, start to get pushed out because they can't compete on price with people who plan to airbnb the crap out the old neighborhood."
Sounds like your notion of the idyllic suburb is getting ruined by the increasingly evolving home rental industry. While I don't empathize, I can understand why this might be uncomfortable.
"I don't have a link to this, but I read once that an economist estimated that good relations with the neighbors were worth about $50,000."
Now this is something interesting I would like to know about, and would give your sentiments more weight.
At the end of the day, if your neighbors want to rent out their homes, they are in the right to do so. As you've mentioned, excessive noise and possible vandalism cannot be tolerated, but assuming this is dealt with, all should be well. Technology and business want to advance though - people want to turn their properties (something as arbitrary as a piece of land which for some reason costs so much) into something that works for them.
I guess what really bothered me about your post is that it seems to be coming from the perspective of upper-middle class white people who want to maintain their comfortable status quo. To which I say, good luck.
If my kid goes to U of A in Tucson, AZ, and I want to go see his graduation, all the hotels for 20 miles around are going to be booked, and remaining rooms are going to be expensive. If somebody has a spare room at a reasonable price for my wife and me, it seems like a win-win situation for the homeowner and the visitor.
But what if I want to visit Hawaii? The tourism is year-round, and a house or condo could be rented out to cover the mortgage. Now lets shift perspective to the neighbor of that house or condo. Every week, there is a new tourist next door, and maybe some of them pick fruit in the neighborhood and some of them make noise. Sure, it's not a big deal to talk to them, except it happens twice a month, over and over, month after month. So the fruit treess and the noise issues are totally relevant.
I also believe that a good neighborhood increases happiness and home values. You can let kids run around and play (and they actually have kids to play with), you stop and chat with neighbors, and lend each other tools, even help out with stuff. Another problem with the whole just-move-if-you-don't-like-it attitude is where are people going to go on an island with limited space? And why should locals give up their desireable beach-front neighborhood to people who have the capital to buy a house and turn it into a rental?
And so we come to the money issue: in Hawaii, where there are nice neighborhoods in desireable areas, being able to run a house as rental business jacks up the home values. Because if someone can buy a 700K house with a 3K/month mortgage and make 4K/month as a rental, they just got a free house. So the market corrects and the house is now worth 900K (or whatever a 4K mortgage is). So now, everybody's property values go up, and so do their property taxes. So, they can either pay more taxes and live next door to the tourists, or sell their house and move to a less desireable neighborhood (at least not desireable enough to have rentals). Oh, and space is limited and new housing is tight, so there actually isn't anywhere more affordable for them to move to.
Essentially, vacation rentals jack up the local housing market for the benefit of real-estate speculators, often mainlanders looking for a second house, at the expense of local families. Also note that outside of Oahu, tourism is the the major industry, and it doesn't pay enough to buy 700K or 900K houses--so locals are doubly priced out.
At the end of the day, all these problems were identified long ago in Hawaii and certain counties have zoning restrictions on short term rentals. These regulations make renting out on AirBnB (and VRBO, etc.) illegal in certain areas. The problem with AirBnB is that they don't have the tools to let homeowners or renters know about those areas.
In the areas where vacation rentals are legal, AirBnB is more like just another website that got trendy/popular for marketing the properties. It would be very interesting to see the ratio of occasional hosts to "professional" hosts on AirBnB. My guess is they book most of their nights through the established rentals, so it's definitely not in their interest to curtail those. That also means they're less about peer-to-peer sharing and more about encouraging the creation of short-term rental properties to market.
> The law is a terrible tool, way worse than just talking to your neighbors, but when you have a new neighbor every three days,it may be all you've got.
On the contrary. The law is the tool of choice for dealing with externalities. Much of the law occupies itself with either preventing negative externalities (e.g. environmental regulation), or addressing free-riding on positive externalities (e.g. private property). Situations involving externalities are actually the strongest case for invoking the law, because in these situations individual rational self interest is inconsistent with the behavior that optimizes overall social well-being.
What I mean is that it's better when people can reach a mutual agreement. My neighbor doesn't play the drums loudly at 2am because I've talked it over with him and he agrees, especially since I don't mind if he plays at other times. That's better for everyone than going to the law and forcing him to stop.
But if people can't agree and someone has to be coerced, then of course the law isn't a terrible tool at all, it's the best tool, far better than the other options.
Sharing economy to me means sites like freecycle, couchsurfing, and your neighborhood listserv .
My first thoughts on this relate to those other services. In particular, car and equipment sharing. Sure it's a great idea to rent out stuff you're not currently using, but if everyone starts to rely on the availability of whatever they need, whenever they need it, what is the incentive to actually buy anything for yourself? Further down the road, when an increasingly large portion of the population just assumes they can borrow/rent whatever they need and have decided to never buy anything for themselves, there will eventually be a shortage in goods to be borrowed/rented. So to me, this seems like a market with a very low cap on growth. Namely, when that threshold of borrowers vs owners is reached.
Isn't it beautiful how markets can self-regulate?