Over the past month or so, Airbnb have been the victim of a rather bizarre witch hunt led by The Sunday Times.
First, back in mid-September they accused Airbnb of engaging in underhand lobbying tactics – "Airbnb’s underhand lobbying tactics exposed - The Times, September 17". The headline sounds worrying certainly, but if you read past it, you'll notice this underhanded lobbying consists of inviting Airbnb hosts to an evening of free food and drink asking them to list a few good experiences they've had using the website. At some point in the future, they might even ask their hosts to let a few politicians know that they quite enjoy having the right to use their private property as they wish, and tell would-be regulators to get lost. It's hardly cash for questions.
Now they've gone after them again. This Sunday they published an investigation claiming "widespread abuse of planning laws by Airbnb users, allowing them to take properties out of the already squeezed housing market and turn them into money-making holiday rentals."
Now, obviously we should enforce all of our laws consistently and predictably. But many of these rules shouldn't be on the books in the first place. They say:
"For anyone planning a trip to London, the Airbnb website offers a striking range of furnished flats, spare rooms and, in at least one case in the north London suburb of Golders Green, a converted garden shed.
Last week The Sunday Times visited the studio-shed and nine other holiday rentals in the same property listed on Airbnb. The shed, deemed unsuitable for accommodation by the local council, was on the market for £50 a night."
Now, if this shed was unsafe and unpleasant, the host would likely get a bad rating and while £50 a night is relatively cheap for London there are certainly other options for would-be travellers. What I suspect has actually gone on is that the host has built something perfectly liveable, but not bothered to get the requisite sign-off from the council. Rather than crackdown on the host, we should follow the lead of Sweden where small houses (no bigger than 15sq m) can be built without planning permission.
So we're left with two supposed "problems". First, that Airbnbs are taking housing stock off the market making housing more unaffordable. And second, that Airbnb guests are somewhat more unpleasant to live next to than regular residents. Fortunately, neither hypothesised problem survives contact with reality.
First, Airbnb hardly makes up enough of the London housing stock to have a noticeable impact. As the article points out "all the listings on the site account for less than 0.7% of the housing stock in greater London." Of course, for this to reduce the supply of "affordable" housing it would require that in the absence of Airbnb, that most hosts would instead put their place out on the market as long-term lets, something that's far from guaranteed.
Of course, high rents aren't caused by a small fraction of homeowners renting their properties out. Rather they're caused by a planning policy that prioritises protecting intensive farmland over homes for the rest of us. Research from Christian Hilber at the LSE suggests that if the most regulated region in the UK (South-East) was deregulated to level of the least regulated region (North-East) then house prices would 25% lower.
Jim Pagels in a witty Medium post, points out the intellectual bankruptcy of blaming Airbnb for high housing costs.
Here’s a thought exercise: Imagine the U.S. had very restrictive laws regarding smartphone production. If a new Apple factory wanted to produce more iPhones, each phone would have to go through a long, onerous, and costly approval process by the local government and regulatory agencies. In addition, nearby established phone factories or incumbent phone owners in many areas could successfully pressure the local government to prohibit the new factory from producing phones. Because of these burdens, the supply of phones rises only very slowly (far less than the growth in phone demand), and many people have to go about sharing a phone with family or friends or diverting huge portions of their monthly budget to owning/renting a scarce phone.
In this alternative phone regulation reality, the criticism that “some tiny portion of phones are used for leisure like social media and games rather than important things like work or talking to your family!” as a major cause the phone shortage and high prices would seem obviously wrongheaded.
The Sunday Times' other objection is that Airbnbs (as opposed to long-term lets) impose additional costs (noise mainly) on nearby residents. This is what we economists call a negative externality. An extra cost borne by a third party that's not priced in to the trade taking place. But it's not clear that one exists here.
The excellent Michael Lewyn at the excellent Market Urbanism blog looks at the data and finds this argument wanting. One way to test whether something causes a negative externality are its effects on nearby property prices. For example, if a coal plant opened next-door to an apartment block, flats in that block would probably sharply fall in value. He tests the claim that commercial uses (as opposed residential uses) lower nearby property values by using a proxy for mixed-use areas (Walkscore) and found that high Walkscores correlated with high property values. If Airbnbs imposed costs on others then you'd expect areas with bars, restaurants and hotels in walking distance to have lower property values.*
The Sunday Times should switch targets. Instead of Airbnb they should shift their focus to the outdated planning laws that mean so many spend 50% of their income on rent.
*On Twitter, The Guardian's Alex Hern objects to this line of reasoning. Pointing out that hotels might better contain negative externalities than Airbnbs. Perhaps, he's right that not all commercial uses are equal.
Thankfully, for the sake of my argument, Michael Lewyn has a second test of whether Airbnbs impose costs. He finds that areas with a higher number of Airbnbs experience faster price growth than the citywide (LA in this case) average.
Obviously, it's going to be hard to untangle cause and effect here. So perhaps a better solution is for local authorities to better police noise complaints. Adequate punishments for excessive noise should deter hosts from taking noisy guests in.