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Part 3 in a series on The Case Against Cronyism

Over 8 million people live in New York City. It is the most densely populated city in the US, with over 27,000 people per square mile. With an exceedingly high demand for limited living space in the city, it is no surprise that the cost of living in New York City is astronomical.

There has also been a record number of tourists traveling to New York City. From strolling through Central Park to catching the views from the top of the Empire State Building, the city had 52 million visitors last year. Trips to New York City also feature the high prices of food, travel, and tourist activities.

There is a new way for adventurers to cut costs on their trips while helping struggling city residents in New York City and beyond earn some quick cash: Airbnb.com. The innovative website’s future is in question, though, and not because of normal market competition. What’s more, the livelihood of struggling city residents and towns depending on tourism could be significantly impacted depending on how the struggle over Airbnb.com turns out. But why?

What’s the Story?

Airbnb.com is a website that provides travelers with a database of residents living in dozens of large cities across the world. A person, couple, or family living in a city offers to host travelers, who can choose a place to crash for as low as $10. This saves them quite a bit of money when compared to the price of a hotel room. Airbnb is now “a $2.5 billion company used by an estimated 50,000 to 60,000 people a night.”

Airbnb is a prime example of people providing creative, innovative solutions to problems through the free market. It has been an excellent way for visitors to cut costs on their trips by saving money on a place to stay. Similarly, many young residents of the city have been able to afford the high rent by supplementing their income with Airbnb guests.

However, not everyone sees Airbnb this way, and maybe for good reason. Tech blog Techcrunch warned Airbnb users of one guest breaking into the host resident’s locked closet and stealing her birth certificate, social security card, and valuable jewelry. The guest trashed the apartment, wore the host’s clothes, and bought gifts on the host’s MasterCard.

With stories like this in mind, many powerful people, namely city officials and representatives of the hotel industry, are strongly opposed to Airbnb. They say it is a dangerous company that causes catastrophes like the one described above.

Winners & Losers

Is that the only reason these people are opposed to Airbnb? A few sources do not think so, reporting that city officials likely want to “maximize lucrative hotel taxes” and the hospitality industry is “fearful of competition.” This fear is for good reason: the Boston Globe reported earlier this month that for “every 1 percent increase in the number of Airbnb bookings, there is a .05 percent decrease in hotel revenue.”

Whether for the sake of the homeowner’s safety or for fewer cuts in profits, city officials and hotel representatives are pushing for regulation that will discontinue Airbnb’s growing stronghold on the market.

If regulation passes, city officials will be mandating winners and losers instead of allowing tourists and residents to make their own educated decisions.

The winners of this regulation will likely be:

  • Hotel companies, given that they will not have to compete for tourist demand.
  • City officials who will receive higher taxes from the hotel industry.

The losers in this situation:

  • Residents of the city seeking a little extra cash by opening up their apartments to travelers. Some may no longer be able to afford their rent or pay other bills.
  • Adventurers looking for a cheaper place to stay will no longer have the option.
  • Travelers seeking a hotel room will be hurt. Prices for hotel rooms will increase because alternatives like Airbnb.com will not exist, the demand for hotel rooms will increase, and the supply of places to stay will decrease.
  • The regulation will cause fewer travelers. This will hurt cities that thrive on tourism revenue.

The Bottom Line

Some ramifications of cronyism are annoyances instead of life-changing devastations. Nevertheless, these stories are important in depicting how broad and deep cronyism runs. Any case of cronyism, large or small, results in the same negative impacts, as Anne Bradley detailed earlier:

  • Corruption and injustice are tolerated.
  • Our ability to pursue our vocations to the best of our ability is impeded.
  • Poor stewardship results, as scarce resources go to the most well-connected instead of the people who might use them to their highest-valued use.

In the case of Airbnb, affordable travel and the ability to make ends meet in a big city are being affected by people who want to make extra money by calling in favors rather than using innovation and creativity to improve their products and services.

Leave your comments here

Kathryn Fitzgerald

About Kathryn Fitzgerald

Kathryn Fitzgerald is a project manager and research fellow at the Institute for Faith, Work & Economics. She grew up in Richmond, VA and attended Christopher Newport University, graduating with a BA in economics with a concentration in mathematics and a double minor in leadership studies and Spanish. Kathryn also studied at Oxford University through a program at CNU and lived in an orphanage in the Dominican Republic, teaching English and Bible classes. After graduating from CNU, Kathryn enrolled at the George Washington University, and is currently finishing a master’s degree in economics with a specialty in development.

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  • Pastor Ken

    I had not heard about Airbnb but applaud the concept. what is difference between Airbnb and apartment dwellers in New York renting out their places for the Superbowl? None, as far as I can see. It is incumbent on the renter to safeguard their stuff, and to decide if they want to risk abuse of their place. My guess is the unfortunate theft you referenced happens only 1 out of 1000.
    I would certainly use Airbnb since I am about to retire and money will be a little tighter on vacation trips. I favor letting the free market operate in this case, for all the reasons you have cited. Long live Airbnb.

  • Britney

    I live in NY and have a lot or friends who use Airbnb for quick trips, or short term housing. For now, I’m a huge advocate of the site. If you’ve read the reviews of where you are staying and the guest you allow in your apartment, there’s rarely a problem (just like how you would research hotels before taking a trip). This website helps even the playing field for people who want an adventure, and (knowingly) opt for a cheaper room. But, I wouldn’t be as keen on this site if Airbnb started trying to make a more serious profit – that seems to defeat the purpose. I guess we’ll see what happens in the next couple of months…

  • Bob

    I had not heard of Airbnb – found this to be an interesting concept and potential future option… Thank you for sharing!

  • Toney

    Airbnb is an interesting concept. I’m sure those wanting an adventure would love it yet, others would prefer a more standard approach. It seems to me in a true free market society there would be room for both Airbnb and hotels in the hospitality industry. Isn’t competition the heart of a free market economy? I would think people would want options depending on their economic situation, family situation, etc. The problem seems to arise when regulations are imposed, skewing the free market. Of course ,there has to be some regulations to ensure fairness, equality, and a standard for the industry. We all are aware of the fact that we don’t live in a true free market society. Yet, we do still live in a democracy and we have a voice. We still have free will with how we spend our money and time. It will be interesting to see how Airbnb makes adjustments and learn how to thrive in the travel and hospitality industries. Or will they??

  • LJ

    I’ve used Airbnb for 3 months of travel in Bangkok and could not have found a better deal and experience elsewhere. I’ve also recently used Couchsurfing and was pleased with the experience. What both companies do, and I wish the author would have credited Couchsurfing in more than the title, is give rise to the gift economy. The gift economy is a superb mechanism for building trust, networks and communities. Through couchsurfing and airbnb, I feel like I’ve made a connection with fellow travelers of the world. But, in my opinion the BEST thing about airbnb is that I can help small businesses or those struggling with rent payments with an alternative source of income. Although there is the chance of theft and damages, these systems rely on user ratings of those they exchange with. They are self-regulating organizations that drive abusers out through poor reviews. That’s how the free market works. Regulation of Airbnb will only drive tourism elsewhere where people are treated better.

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