October 27, 2016
The coverage of the new law in New York state, which would prohibit the short-term renting of whole apartments in New York City, has been difficult to understand. It presents as competing claims that it would increase the supply of affordable housing in New York City and that it will allow hotels to raise their fees. (This Washington Post piece is an excellent example.) Actually, it will likely do both.
The basic story is that the city has a large number of units that are subject to some form of rent control. The purpose is to keep these units affordable for people who don’t work on Wall Street. This purpose is defeated if it is possible for either the landlord or tenant to rent out the unit through a service like Airbnb. If the landord is going the Airbnb route then it removes a unit of otherwise affordable housing from the market. If the tenant is going the Airbnb route then they are taking advantage of rent control to make a profit on arbitrage.
This is also bad news for the hotel industry, since people who might have otherwise stayed in hotels will instead stay in Airbnb units, thereby lowering occupancy rates and putting downward pressure on hotel prices. Therefore, there is absolutely nothing contradictory about the argument this measure will both increase the supply of affordable housing and benefit the hotel industry.
The long-run story may be somewhat different. In the long-run the construction of hotels is responsive to demand. If there is a high vacancy rate in the city’s hotels, there will be fewer hotels built in future years. This will leave more land for the construction of apartments and other uses. In that case, the restriction on Airbnb rentals may not ultimately lead to an increase in the number of affordable housing units in the city (a financial transactions tax would be more effective), but is perfectly reasonable to believe that in the short-term this restriction on Airbnb rentals will both increase the supply of affordable housing units and benefit the hotel industry.
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