The web startup Airbnb is finding itself in hot water lately. A peer-to-peer service that matches renters with rentiers, the company is under attack by entrenched lodging businesses such as hotels. It’s easy to see why. The company, which is fairly decentralized, breaks through the thicket of established chains. It matches real people with real people, each seeking to mutually profit from one another. As Jeffrey Tucker writes, Airbnb allows “regular people to cut through stultifying regulations and make better lives for themselves.” It breaks a sacred rule of economics: anything that bypasses the hold of legacy businesses is bound to garner unwanted interference.
In a confusing column for Bloomberg View, Leonid Bershidsky encourages government regulation of Airbnb for reasons totally unclear. As a resident of Berlin, Bershidsky feels crossed by the startup’s business model. He thinks that local governments give too much leeway to Airbnb hosts, and doesn’t gouge them enough for ransom payments known as taxes. He complains that it’s hard to find liveable, long-term apartments in Berlin because a service like Airbnb emphasizes short-term rentals. He writes: “I’m pleased that Berlin has banned short-time rentals without express permission from the city government.”
Why so much angst? Apparently, Bershidsky had a tough time finding an apartment in the most populated area of the city. But rather than chalk it up as a fact of condensed living environments, he pins the blame on Airbnb. Since the peer-to-peer network makes it easier to rent out extra rooms or beds, it makes it profitable to do so on a continual basis. People with larger apartments can have a continuous flow of guests fill their space, make some extra cash, and overall assist in the dynamic market process.
Bershidsky wants none of it. He wants the government to control the process through which people utilize their own property. Airbnb is a nemesis to the stifling nature of the state. Where bureaucrats domineer the playing field under government-supervision, peer-to-peer networks connect people without obtrusion. They slash the cost of doing business by eliminating the middle man. They are empowering, and allow for a more mutually-beneficial economy.
Currently, Airbnb is being shaken down for its records on hosts by the Attorney General of New York. The state government demanded details on over a hundred Airbnb hosts, presumably to check if current housing regulations are being followed. In an editorial for the New York Times, Attorney General Eric Schneiderman claimed that some Airbnb hosts were, in fact, “large, commercial enterprises with dozens of apartments – truly illegal hotels.”
The question is: what’s wrong with this? Why does it harm anyone if a corporation rents out individual apartments? From the consumer perspective, it’s just another choice. But from the government’s perspective, this is an encroachment on its established code of conduct. Hotels operate under specific regulations, including levels of taxation. That large companies are using apartments as de facto hotels is indicative of something: that it’s cheaper and more effective to rent out individual apartments than incorporate them under the authority of a hotel chain. If it wasn’t cheaper, then Airbnb would not be needed.
Bershidsky’s main outrage is the shortage of affordable long-term housing in Berlin. He misunderstands the crux of the issue however. Airbnb is not responsible for a lack of liveable apartments. The service is making the best out of a suboptimal situation. The ever-rising price of rent in big cities is a product of state intervention. Rent control, zoning restrictions, mandatory building requirements, union laws – all these and more contribute to the low supply of residential space.
If the function of Airbnb is to facilitate the process through which renters and owners come to terms of agreement, it’s hard to see how this exacerbates the problem of housing scarcity. If anything, Airbnb is making the search for lodging much easier. Opponents of the company claim they want to rein in the housing network in the name of the public good. But as Edmund Burke once wrote, proponents of “the public good” often operate under a “spirit” that is “the very reverse” of collective prosperity. Supporters of government regulation, in Burke’s words, often “abandon the dearest interests of the public to those loose theories, to which none of them would choose to trust the slightest of his private concerns.”
Airbnb is perfectly capable of facilitating housing arrangements among ordinary citizens. But since that process is already controlled by the government, the company is attacked by special interests who benefit from political regulation. Government actors are preferred over private – for reasons never totally explained. But since politics is always determined by “cui bono?” it’s clear that some entrenched parties benefit from Airbnb operating less efficiently. They are beneficiaries of government-established barriers to entry. Though they are classified as private, for-profit businesses, they rely on ostensibly “public” rules to boost their profit margin. It’s a farce; and one that is accepted by far too many.
A common argument against Airbnb is that it’s too anarchic. Two normal citizens exchanging money for lodging without supervision can seem like a scary proposition in our state-centric world. So many of the basic goods and services we rely on are controlled by the government. Bureaucratic approval is needed for everything from food to transportation. The idea of people bargaining and making deals without the consent of government officials is strange – even though it happens on a continuous basis in the shadow of the state, also known as the black market.
What Mr. Bershidky, and those who share his outlook, don’t realize is that the market regulates peer-to-peer industries already. Customers who get a bad product shun the producer. Rentiers who house surly or unkempt tenants become wary of renting to strangers. As Mises said, the market is a process. Regulation and rules don’t appear overnight. They are established through a trial-and-error process. Given enough time, Airbnb can establish its own rigorous criteria for ranking hosts and customers.
If the government begins cracking down on the apartment-sharing service now, it’s unlikely the company will flourish to its full potential. Government regulation has the tendency to creep. What may appear to be a few, minute rules can turn into a whole docket of stipulations.
Mr. Bershidsky’s tirade over Airbnb won’t make the housing market in his city more affordable or equitable. It will only enlarge the greater issue: government deliberately keeping the supply of housing low. I’ll give Bershidsky the benefit of the doubt and assume he merely looked over this unintended consequence. But something tells me he knows far more about the outcome of his proposition then he lets on.
James E. Miller is editor-in-chief of Mises Canada, where this article was originally published. Send him mail.
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