On September 5, New York City implemented a handful of new regulations targeting short term rentals. Most notably, those hoping to rent out their property must register with the city and be present on the premises during the rental period. This kills many Airbnbs and Vrbos where the owners are not always on the property (nor do the guests want them to be). There are some obvious economic problems with this move, but many believe that the new regulation prevents some benefits. Beyond the purely financial implications, some people believe there is a moral issue with the short term rentals and their affect on the housing shortages in the city. What happens with regulations like this affects the rest of the country because its not just New York, other municipalities have already begun implementing similar policies.

Of course, there is a basic economic problem here. By restricting the market for short term rentals in the city, New York may push down the cost of monthly rent, but it will send short term rental rates sky high (Airbnb alone has 40,000 listings in the city). Furthermore, many of the people who went into business to run New York Airbnbs will lose their revenue streams and be forced to shut down. This is going to have ripple affects on the tourism and housing industries in the city, but it will also likely send another wave of entrepreneurs out of New York, which is a larger hit than any of us can accurately imagine. These types of market distortions create suboptimal resource allocations by removing the decision making power from individuals.

Those in favor or this and similar restrictions point out that more places will be available for people to rent long term, driving down the cost of housing. However, the argument here is not usually a simple supply and demand conversation. It’s true, this will likely increase the availability of long term rentals in New York and drive down the price. Most proponents are not focused on the financial situation per se; they are focused on the moral issue of housing availability for local New Yorkers. I hear this line of thought from friends, family, coworkers, and others around the country who suggest that it is wrong for investors to buy property in their area making it more expensive for “locals” to pay for housing. The implication is that the people who are already living there have a right to the area that outside investors (or even local investors) do not have. I’d like to suggest that none of us have a right to a particular type of residence in a particular place for a particular price. The market system can help sort out a way to make sure there’s enough housing without government intervention. If people cannot afford to live in New York city, wages will rise or people will leave. That’s not a bad thing. Feeling forced to move is awful and expensive. However, if central planners begin to interfere with economic signals, it can lead to far more devastating unforeseen effects down the line. As mentioned above, this Airbnb crackdown will likely drive entrepreneurs out of New York. While often overlooked, entrepreneurship is one of the key components for economic growth, and no city can thrive without good entrepreneurs. If someone believes there is moral standing for the city favoring long term over short term rentals, I’d love to hear from you.*

While such rules allow politicians to appear as virtuous defenders of the weak using questionable moral claims, they do very little to solve the housing shortages in cities like New York. Zoning restrictions are always a better target for creating more housing in an area. If people are allowed to be more flexible with the property they own, there’s a lot more ability for entrepreneurs to open up housing options here, there, and everywhere. Often, people see a problem in society and believe we need a top down or centrally planned solution. It’s a real issue if you’re living in a place and cannot afford to make your rent. Unfortunately, top down solutions will not solve problems like this. Information is spread too thin and is too unique to be compiled for central planners to effectively collect and act on. However, in our hubris, many seem to think that they can overcome this problem and perfectly orchestrate a societal solution. Just like central planning, decentralized decision making encouraged through reduced regulation won’t solve the problem overnight. However, a decentralized approach allows for trial and error to reveal who has the best way to solve small, individual problems. If circumstances change, we’ll be much better equipped to pivot.

*Saying that this favors long term rentals is a bit of an oversimplification. I think that the big hotels and other mainstream vacation rental companies will be the biggest winner in this new regulatory framework. That’s exactly what Dr. Haymond points out in his article that he just happened to be writing at the same time.