Regulating Out Renters

Airbnbs and VRBOs are out. What’s that you say? What are they? They are short term rentals. Residential occupants rent out their domiciles for anything from a day or two or three up to several weeks and maybe as long as a month or so. Perhaps the vendors go out of town for that stretch of time, and want to add a bit of spending money to their budgets. Maybe they are in the business of renting out residential real estate for such short time periods.

Why are they on the way out? This is because government is rendering this sort of commercial activity more and more difficult with more and more onerous rules and regulation, even including outright prohibition. And why, in turn, might that be the case?

One path toward an explanation of this phenomenon is to ask quo bono? Who gains from interfering with this type of marketplace behavior?

One answer is obvious: hotels and motels. They are in direct competition with those who rent out homes on a temporary basis. For a large family, a residence of 3,000 square feet for $1000 per night is a much better deal than five hotel rooms of $300 each. So, yes, it is a reasonable hypothesis to look at this sector of the economy for an explanation of these new stifling rules.

Another source of dissatisfaction with Airbnbs and VRBOs stems from homeowners and renters who do not engage in such activities. They oppose all this moving in and moving out in their neighborhoods. They want a nice quiet residential experience. They want to know exactly who are their neighbors- whether for safety reasons, or for friendships or block parties or whatever.

What is the optimal allocation of resources between temporary and more permanent accommodation? Desirable from whose point of view? From the perspective of all concerned.

Yes, we can acquiesce that permanent residents want more permanence in their geographical areas. But how, then, do we factor in the desires of temporary residents, many of whom are tourists, who relish just that sort of permanent residences for their short visits, and wish for cheaper room rates?

The free enterprise system provides the only way out of this physical and philosophical morass. The best solution, the only one, is for the government to withdraw its gargantuan powers and exit the scene entirely.

Then, hotels will simply have no power to eliminate their competition. What about the interests of those who seek some semblance of permanency in their surroundings? Let them form condominiums and/or homeowners associations to limit or even prohibit this type of arrangement. If the transactions costs of so doing are less than the benefits, temporary housing will be severely truncated in those areas. If not, the tourists will be better served. In this way the “magic of the market” can be called upon to, in effect, weigh imponderables against one another.

This issue does not arise only in housing.  For example, some people purchase automobiles and keep them for 10 and sometimes even 20 years. Others trade in their cars every two years or so. Then there are those who shun ownership altogether and lease a vehicle for a relatively long time, perhaps six months or a year. Further, there are still others, tourists, visitors, who rent for a day or two or three from Hertz or Avis or from many others in this industry.

Should the government get involved here, too, and press its big fat thumb on the economic balance wheel and mandate either longer or shorter durations of our relationships with our autos? Maybe push us from ownership to rental or back the other way around? Of course not. It would be no more desirable or beneficial in this sector of the economy than it would be in the case of residential rentals.

Socialism simply does not work in any sector of our economy.

Walter E. Block is Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics at Loyola University New Orleans and is co-author of the 2015 book Water Capitalism: The Case for Privatizing Oceans, Rivers, Lakes, and Aquifers. New York City, N.Y.: Lexington Books, Rowman and Littlefield (with Peter Lothian Nelson ).