Airbnb is good, actually

Airbnb is good, actually

Make tourists pay taxes, but don't try to stop them from coming

Matthew Yglesias

Wed, 29 Sept, 19:01 (19 hours ago)

Comment

Share

Over 25 paragraphs into a long New York Times story on Barcelona’s efforts to severely curtail Airbnb rentals (efforts the article describes as “one of the few effective tools that [Barcelona] can deploy to rein in excessive tourism and address the city’s housing problems”), we finally hear from Airbnb’s competition, the hotel industry:

Manel Casals, the general manager of Barcelona’s hotel association, welcomed the ban, saying that Airbnb is “a concern for cities everywhere” because it deprives local governments of taxes, disrupts residential areas, and fails to ensure adequate health and safety standards for guests. “It will help Barcelona to prohibit this,” he said, adding that the city’s hotels don’t consider Airbnb a competitor as they serve a different customer base.

They’re happy to make the competition illegal, but of course, they don’t compete!

(Filip Radwanski/SOPA Images/LightRocket via Getty Images)

I’m known as a market urbanist, pro-innovation kind of person who’d be disinclined to support a ban on Airbnb. So years ago, the company tried to pitch me stories about how it’s not actually true that Airbnb raises rents when it enters a city. I had to tell them thanks but no thanks. I may find it annoying when leftists deny that supply is relevant to housing prices except when the subject is Airbnb, but I’m not going to do an equal and opposite hypocrisy. It’s probably silly to assume one-to-one displacement of long-term rentals by short-term Airbnbs, but it would be crazy to assume zero displacements.

The Barcelona story illustrates the three main sources of tension around Airbnb:

Hotel owners (and hotel worker unions, where applicable) don’t like Airbnb for protectionist reasons.

Airbnb makes long-term renters compete with short-term renters and probably drives up rent.

And, in the case of Barcelona, “excessive tourism.”

Excessive tourism was a hot topic before the pandemic (usually under the name “overtourism”), but I don’t see any serious case that tourism is bad for a city. More tourists mean more jobs, higher incomes, and more tax revenue. Now what’s true is that if your tourists are all bidding up the price of housing (via Airbnb), the tourists could be displacing residents. And that’s bad.

But if you think of Airbnb specifically as part of the overall urban housing policy challenge, then I think you start to clearly see your way to solutions.

Airbnb exacerbates housing scarcity

This paper on Airbnb by David Wachsmuth and Alexander Weisler relies heavily on the concept of the “rent gap,” which I think is mostly nonsense and has induced incredible confusion in left-wing urban planning circles.

Nonetheless, they helpfully document the qualitative fact that Airbnb’s entrance into New York City was significant in magnitude, especially in Manhattan and Brooklyn.

I frankly don’t need a lot of convincing that when you start removing units from the rental market, you end up with higher prices. But a couple of careful empirical papers suggest that this is, in fact, what happens.

Keren Horn and Mark Merante studying Boston find that “a one standard deviation increase in Airbnb listings is associated with an increase in asking rents of 0.4%.”

Kyle Barron, Edward Kung, and Davide Proserpio looking at a national sample across the U.S. “find that a 1% increase in Airbnb listings leads to a 0.018% increase in rents and a 0.026% increase in house prices.”

Supply and demand: it’s a thing.

Conversely, Chiara Farronato and Andrey Fradkin find that Airbnb reduces hotel rates by introducing competition into the hotel market. Again, supply and demand.

Let’s say some nice things about Airbnb

To put my cards on the table, I think Airbnb is pretty great.

I own a rowhouse in D.C. that has a main unit above and a basement apartment below. For years, we maintained the basement apartment primarily as an Airbnb rental but secondarily as a guest suite for when grandparents wanted to come visit their darling grandson or the occasional visits by friends from New York who deigned to make it down here. That’s a really good deal for city-dwellers. It’s nice to have guest accommodations, but it’s also inherently pretty wasteful, and in an urban environment, wasting living space can be very costly. Maintaining a mini-hotel that generates income when it’s not being used by personal guests is pretty great. (The basement is now Slow Boring World HQ.)

Airbnb is also good if you’re traveling. Pre-Covid, we used Airbnb to take our kid with us on trips to Dublin and Madrid. With an Airbnb, you don’t get the level of service that you’d get from a hotel, but you do get kid-friendly features like a fridge and a laundry machine. You can stockpile and cook favorite foods rather than rely constantly on eating out. And some Airbnb hosts go out of their way to create kid-friendly offerings with toys and such.

It’s a great deal for family travel because while hotels of course accommodate all kinds of guests, the dominant business model for hotels is renting to business travelers. And a lot of the time, a city’s hotels will all be in the central business district or at some highway interchange, while the most interesting place to stay for a non-business traveler could be a residential neighborhood with good restaurants. In my Airbnb host days, we frequently had customers who were ex-D.C. people back in town to visit friends, and they wanted to revisit U Street and Shaw rather than stay downtown. We also sometimes got multi-week stays from people who were moving to D.C. and wanted a place to crash while seeking a more permanent apartment — again, the location in a real neighborhood was a plus.

Are tourists bad?

When I lived in New York, I often had occasion to see tourists and think to myself, “ugh, tourists.” The tourists who’d visit the Harvard campus were, if anything, worse and even more annoying. And D.C. tourists are in some ways the most annoying of all, because it’s often school groups or tacky people into patriotic stuff. And of course, when Trump was president, we got MAGA Tourists, and that was really off the rails.

But aesthetics aside, are tourists bad?

Of course, there are whole cities like Orlando (or even countries like the Bahamas) where tourism is the main export industry. I think we see pretty clearly that a tourism-based economy is not an optimal path to prosperity since tourism-related jobs tend to be relatively low wage. But at the same time, it strains credulity to suggest that tourism-dependent places would actually be better off with less tourism. What they need to do is leverage tourism into the development of higher value industries over time. But the tourism itself is good.

What about in larger, more diverse cities? It seems to me that tourism and amenities for residents are pretty complementary. The last time I was in London, I went to the theater, which I think is something a lot of people do when visiting London or New York. But it would be wrong to think of the tourists as crowding out locals at the theater. On the contrary, the existence of a robust tourist market simply deepens the local theater scene, something local people can take advantage of.

And that’s the general pattern: tourists mostly do stuff (go to museums, go out to dinner, check out a live event) that residents also do. The rotating exhibits at places like the National Gallery of Art can’t really be aimed at tourists, but the existence of tourists visiting the National Gallery helps support the rotating exhibitions. Usually, by the time a restaurant becomes sufficiently well known to attract a large tourist client base, it’s past its prime — but tourism still spurs more restaurant openings than you’d otherwise have.

And of course, tourists pay taxes. Some of those are special hotel and car rental taxes, but a lot of them are city taxes on retail purchases and restaurant meals. The best kind of tax revenue a city can get is taxes that are paid by someone other than the people who live there.

Housing supply shouldn’t be fixed

I’m now going to offer my boring solution to the very real problem of housing scarcity — build more!

Every city in which people are worried about Airbnb’s impact on housing supply also has tons of rules designed to constrain the addition of new housing units. But if an influx of Airbnb demand meant a construction boom, that would be great news for jobs and growth and all kinds of other good things. The “problem” with Airbnb is really just the fact that when you constrain the housing supply, anything can be bad. A company opening a new headquarters with tons of high-paying jobs could be bad. A new metro line opening could be bad. An improvement in the quality of the local schools or a decline in local crime could be bad. It doesn’t make sense for us to be living our lives terrified of an increase in housing demand.

And that’s true whether it’s demand for owner-occupied housing, long-term rental housing, or short-term rental housing.

By the same token, one reason Airbnb exploded so vibrantly when it came onto the scene is that a lot of cities underbuild hotels. New York City recently enacted tough new rules to make it nearly impossible to add new ones, which is some kind of bank-shot effort to help unions. But people being able to visit your city is good.

Taxes are your friend

Part of why banning new hotel construction is so nutty is that normally, hotel rooms are a big source of tax revenue. Indeed, even while NYC was cracking down on new hotel construction, they temporarily suspended the city’s hotel tax this summer because they wanted to revive tourism. As of September, it’s back in effect.

And almost every time I hear a legitimate sounding concern about Airbnb in particular or “overtourism” in general, I feel like what I’m actually hearing is a story of under-taxation.

For starters, in some instances, Airbnb has tried to run a tax arbitrage where you undercut hotels because you’re not paying hotel tax. Obviously, you shouldn’t let that happen. And if tourists to your city are somehow overburdening the existing infrastructure, that means you’re not taxing them heavily enough. Tax more and you’ll have fewer people and also more revenue to address your infrastructure needs.

But even if you’re not talking about a hard infrastructure constraint and are just dealing with people’s annoyance at tourists, you’re almost always better off throttling demand with higher taxes than restricting quantities. Restricting quantities of available accommodations creates windfall gains for hotel owners, which is why the Barcelona hotel people are so excited about banning Airbnb. If you let quantities be theoretically unlimited but charge high taxes instead, then you have revenue you can spend on schools, public safety, parks, or whatever else people like.

Comment

Share

This post is only for paying subscribers of Slow Boring .

Like & Comment

© 2021 Matthew Yglesias Unsubscribe