The Airbnb Threat

Offered as the “Boutique Winter Igloo for 2,” this $200 a night Airbnb listing in Brooklyn, NY had five rental requests. Its owners said they had been awaiting a snowstorm and when Jonas hit, used YouTube tutorials to build it.

After six hours the listing was removed by Airbnb because, “your igloo, while very well constructed, has failed to meet our occupancy standards.”

Where are we going? To Airbnb’s impact on hotels.

The Airbnb Model

Airbnb is a source of NYC’s short term rentals–as many as 25,000 listings during one night. Seeing $451 million in business siphoned away from September 2014 to August 2015, the hotel industry says what Airbnb does in NYC is illegal. They suggest that Airbnb should be paying taxes, should be observing fire and safety regulations, and should not violate the law that prohibits less than 30-day rentals without the owner/occupant being present. Meanwhile Airbnb advocates point to the extra rental income households receive and the underutilization that renting diminishes. Airbnb adds that it complements the hotel industry.

You can see below that Airbnb has indeed become a threat:

I wonder though whether the real threat is outdated regulation. As with Uber, we need to support new business models that fuel our economy.

Our Bottom Line: Outdated Regulation

Looking back at a post on questions about the status of Uber’s employees, our bottom line was outdated regulation that also applies to Airbnb:

Market economies flourish with clearly established rights and obligations. When I sign a contract, I don’t even wonder if the law will enforce it. If I get a patent for a new drug, I know, for now, it is mine. Reducing transaction costs, these kinds of laws make doing business easy.

By contrast, the new kind of short term rental in the gig economy needs some regulatory catch up. Otherwise, ambiguities will retard innovation and create inefficiencies for consumers and businesses.