1.Read the excerpts from recent articles about AirBNB in Appendix [4].

a.Identify and explainone example of a negative externalitycaused by the buyer/seller transactions on AirBNB's platform. Who is hurt and how?

b.Identify and explainone example of an information asymmetryin the market for short-term rentals. Who is informed, who is uninformed, and why might it hard to for the uninformed party to get informed?

c.A common criticism of AirBNB is that it reduces the availability of long-term rental apartments, as more apartment owners list their properties on AirBNB. What market failure does this represent?

d.From the articles, it appears that many cities require hotels (i.e., places that rent housing for less than 30 days) to be licensed and to undergo regular inspections. What market failure, if any, do the licensing and inspection regulations address and how do they address that failure?

Airbnb: New lease of life

Oct 16th 2014 Economist.com

LAST week [2014] San Francisco finally passed laws legalising short-term property letting through platforms such as Airbnb. ... The new regulation only allows people to rent homes through these sites if they are San Francisco residents living in the unit for at least nine months a year. They also have to register as hosts with the city, promising under penalty of perjury that they meet those conditions.

The fact that cities are revisiting statutes reflects the growing influence of Airbnb. In just six years the firm has flourished, and now boasts over 800,000 properties in 34,000 locations with 20m users. ...

But even as Airbnb claims victory in its home city the honeymoon period may be coming to an end. There are worries that speculative investment in buy-to-let properties, with a mind to renting them on Airbnb, is pricing out locals and creating a housing bubble. Meanwhile, hotels are now lobbying lawmakers, hoping to persuade them that Airbnb's practices are illegal, despite the firm's offer to pay hotel taxes. Regulators remain divided, but New York in particular is under pressure to crack down, led by a dedicated opposition group called ShareBetter.

Part of the problem is the gold rush Airbnb has prompted. What began as a platform for homeowners with spare rooms to make a bit of pocket money on the side, is becoming overrun with property entrepreneurs looking for lucrative short term gains. ... Meanwhile success breeds exploitation. From trashed properties and wild parties to a multitude of scams, there are plenty of Airbnb horror stories circulating to put off prospective tenants (and landlords) ...

San Francisco Makes Airbnb Legal At Last

Julie Bort, Oct. 10, 2014Business Insider

... It was never exactly legal to rent rooms out in San Francisco for fewer than 30 days, a time period that was more like running a hotel than subletting an apartment.But for those who rent whole homes for fewer than 30 days via any internet site, like HomeAway or VBRO, or even Airbnb - that's still forbidden.

The new regulation only allows people to rent homes through these sites if they are San Francisco residents living in the unit for at least nine months a year. They also have to register as hosts with the city, promising under penalty of perjury that they meet those conditions.

...Meanwhile, all eyes are on New York, where Airbnb is fighting a similar battle to come up with rules for Airbnb hosts. New York has been cracking down on hosts who rent multiple units on the site, in search of what it calls "illegal hotels."

And, even if the city makes Airbnb legal, some home owners' associations are banning their home owners from renting their units out over Airbnb. And some landlords have forbidden their tenants from renting out over the service, too, as terms in the lease....

Airbnb wreaks havoc on Vancouver rental scene: City doing little to deal with problem

Allen Garr / Vancouver CourierMarch 9, 2016

&

Airbnb puts squeeze on renters, affordable housing, environment

Allen Garr / Vancouver CourierMarch 15, 2016

...The online booking service [AirBNB] has had a meteoric rise since its beginning in 2007 when two young San Franciscans devised a scheme to cover a portion of their rent. They installed three air mattresses that's the "air" part in their apartment's loft and offered guests a hot breakfast as part of the rental, which made it a bed and breakfast. Less than a decade later, Airbnb boasts listings in thousands of cities around the world, more than 15 million nights booked, and a value of somewhere in the range of $25.5 billion.

The appeal of Airbnb is obvious. All wrapped in the cuddly packaging of "shared economy," people with a spare room can supplement their incomes. If you have a basement suite or an investment property or two you can make far more using the service of Airbnb and renting out by the night than you could with monthly rentals.

There is, of course, push back from folks around the world for the simple reason that a resource that may have been designed for long-term housing, has now been given over to tourists. And that puts the likelihood of affordable and available housing for the one half of Vancouverites who are renters even further out of reach.

The website "Inside Airbnb" managed by New Yorker Murray Cox gives results from sifting through listings for a number of major world cities. From what he has scoped out in Vancouver most recently, we see there are 4,728 listings. ... More than 67 per cent of the listings, or 3,179, are for either apartments or whole houses. ...

Now for this being largely illegal activity: ... Vancouver's own zoning and development bylaw section 10.21.6 says, "No person shall use or permit to be used any dwelling unit for a period of less than one month unless such unit forms part of a hotel or is used for bed and breakfast accommodation."

Which means, not only should these property owners have a license, they should be paying hotel tax and be subject to health and safety inspections.

... One group that has been inspired to take action are the folks who make up strata councils. Sean Ingraham runs a strata management company called First Service, and he has been holding workshops for condo dwellers who want to amend their bylaws to block short-term rentals.

The issue that drives most strata councils to make that move involves security. Knowing your neighbour becomes problematic. When the joint is taken over by short-term rentals you don't really know who should be in the building.